optimsing the development performance of corporate …construction, oil and gas, power, leisure and...

Optimsing the Development Performance of Corporate Investment

Building the Case for a Core Competences Approach

Michael Warner

programme on

Optimising the Development Performance of Corporate Investment

Overseas Development Institute

Funded by

Private Sector Policy DepartmentDepartment for International Development

Overseas Development Institute111 Westminster Bridge RoadLondon SE1 7JDTel: +44 (0)20 7922 0300Fax: +44 (0)20 7922 0399E-mail: [email protected]

© Overseas Development Institute 2002

All rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted in any form or by any means, electronic, mechanical, photocopying,recording or otherwise, without the prior permission of the publishers.

mailto:[email protected]

The ODPCI programmerefocuses the practice ofcorporate social responsibility(CSR) in developing countries,from the management ofadverse social impact and risk,to the performance of corporateoperations in contributing to the

development of poor societies.

Optimising the Development Performance ofCorporate Investment

Introduction

The Overseas Development Institute (ODI) is Britain's leadingthink-tank on international development. The Institute islaunching a new action researchprogramme: "Optimising the

Development Performance of

Corporate Investment". Theprogramme is intended to raise theprofile of international development andpoverty reduction as components ofcorporate social strategies andcorporate investments.

The objective of the programme isquite specific: to develop andmainstream a management tool thatsystematically maps the full range of assets, resources andcapabilities of a corporate operation onto the developmentpriorities of the operating region. The resulting 'inventory ofcompetencies' is then used to:

• inform the design of social performance strategies forcompanies and associated suppliers;

• align the social contents of competitive tenders andinvestment proposals with public policies for povertyreduction; and

• better prepare companies for stakeholder dialogue andpartnership negotiations with government authorities,foreign development agencies and civil societyorganisations.

The approach is cost-effective because it emphasisesdeployment of existing resources and competencies, ratherthan introducing new fixed costs.

The Private Sector Policy Department of the UK Departmentfor International Development has seed-funded theprogramme. Preliminary research has been completed. Themain conclusions are as follows:

• in many low income developing countries, althoughcorporations contribute to the economic development of

wider society through products andservices, dividends, tax and wages, thepositive impact of their businesses onthe poor could be enhanced;

• there could be far greater coherencebetween business success and thedelivery of public policies for povertyreduction;

• a more systematic assessment isneeded of the potential interfacebetween poverty reduction and the

full spectrum of core business competencies, including:product development, production capacity, skills(engineering, management), procurement, marketing,distribution, operational infrastructure (power, water,transportation and communications), borrowing capacity,human resource development, and investor and end-userrelations;

• the current trend for corporations to build up their internalcapabilities in community development runs counter toconvention on business growth strategies in alien markets;

• it is a basic business principle that in such markets strategicalliances, based on a defined pooling of complementarystrengths, and not internal development or acquisitions,offers a more cost-effective and less risky means to improvebusiness performance.


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Dr Michael WarnerOverseas Development Institute

111 Westminster Bridge RdLondon, SE1 7JD

Tel: 00 44 (0) 207 922 0300E-mail: [email protected]

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CONTENTS

Discussion Paper – Overview 9

Purpose of the ODPCI Programme 13

Structure of Report 13

Conclusions 13Mapping Business Competencies onto Development Priorities 13Linking Corporate Investment and International Development 15Embedding a Core Competencies Approach to Development Performance 16

Discussion Paper – Part 1 19

Part 1 Mapping Business Competencies onto Development Priorities 23

1.1 Introduction 23

1.2 Re-Thinking Corporate Social Responibility 231.2.1 New Pressures 231.2.2 The Counter Argument 241.2.3 Emerging Evidence of a Business Case 241.2.4 The Need for Greater Systematisation 241.2.5 Examples of Core Competancies 251.2.6 Step Change 25

1.3 Research Output 26

1.4 Linking Business Competencies to New Social Partnerships 261.4.1 Social Partnering 261.4.2 Complementary Competencies 281.4.3 Available Guidance 281.4.4 Selecting Indicators 301.4.5 From Development Evaluation to Development Enhancement 301.4.6 Comparing Social Partnering to Company-led Approaches 341.4.7 Support for a Business Competencies Approach to Development

Performance 351.4.8 Summary 36

References 37


Part 2 Linking Corporate Investment to International Development 43

2.1 Introduction 432.1.1 Positioning the ODPCI Programme in the Debate on Economic

Globalisation 432.1.2 Do Corporate Operations Contribute to Poverty Alleviation? 432.1.3 Foreign Direct Investment (FDI) as Proxy for Corporate Investment 452.1.4 FDI, Growth and Poverty 462.1.5 FDI and the Decision to Invest 46

2.2 FDI and ODA - Myths and Truths 462.2.1 FDI in Developing Countries 462.2.2 FDI as a Feature of Economic Activity 472.2.3 Contributing to Development Priorities: FDI vs ODA 522.2.4 Limitations 582.2.5 Factors Constraining the Development Performance of FDI 592.2.6 Ratios of FDI to ODA 60

2.3 Industrial Sectors 652.3.1 Introduction 652.3.2 Aggregated Data 652.3.3 Sectoral Composition in Selected Countries 652.3.4 FDI data at Company Level 65

2.4 Market Projections 662.4.1 Nigeria 662.4.2 Vietnam 66

References 71


Part 3 Embedding Development Performance 79

3.1 Introduction 79

3.2 Management Approaches 793.2.1 Social Impact Mitigation and Risk Assessment 803.2.2 Dedicated Community Development Programmes 803.2.3 Scenario Planning 813.2.4 Resource and Market Based Strategic Planning 823.2.5 Relationship Marketing 843.2.6 Growth Strategies 86

883.3 Conclusion 90

References 91

Figure 1 Framework for Corporate Citizenship 23Figure 2 Development Performance in Relation to Magnitude of Impact on the Poorest

in Society26

Figure 3 Building Blocks of a Competencies-Development Management Tool 33Figure 4 Company-Led Social Investment vs Core Competencies/Partnering 34Figure 5a Distribution of the Total Added Cash Value - Vodafone 44Figure 5b Distribution of the Total Added Cash Value - Unilever 44Figure 5c Distribution of the Total Added Cash Value - Barclays 45Figure 5d Distribution of the Total Added Cash Value - BP 45Figure 6 Total Global Inward FDI Stock, 1999, by Region 47Figure 7 Inward FDI Stocks for Developing Countries, 1999 48Figure 8 Inward FDI stocks as %GDP, 1999, for developing countries ranked by

increasing/decreasing GDP per capita (part 1 of 3)49

Figure 9 Average Annual Flows of ODA and FDI as % Gross Domestic Product forDeveloping Countries ranked by GDP per capita, 1996-99 (part 1 of 3)

62

Figure 10 FDI Inward Stock by Industry and Region (LDCs) 1999 ($m) 65Figure 11 Number of Fortune 500 Companies Present in the Poorest Developing

Countries70

Figure 12 Presence of Selected MNEs in Developing Countries 70Figure 13 Types of Internal and External Information Deployed to Undertake Scenario

Planning84

Table 1 Evidence of the Business and Development Benefits of Social Partnering (Oil,Gas and Mining Sectors)

29

Table 2 Mapping of Core Business Competencies onto Development Priorities 31Table 3 Developing Countries with the High FDI Stocks Relative to GDP (1999) 48Table 4 Generalised Inventory of the Development Priorities of ODA in Poor

Countries53

Table 5 Contributions to Development Priorities from Corporate Operations andODA Instruments

54

Table 6 Trends in DFID ODA 59Table 7 Ratio of FDI:ODA, for the 70 Poorest Countries 61Table 8 Industrial Sectors Most Relevant to Selected Countries (based on GDP) 68Table 9 The largest 30 MNE Foreign Affiliates in LDC (1999) for which data exist 69Table 10 Performance of Existing Business Management Tools 79

Box 1 Pooling of Core Competencies 25Box 2 Business Case for Social Partnering 28Box 3 Development Case for Social Partnering 28Box 4 Reducing Capital Infrastructure Costs and Building Community Roads 35Box 5 Developing New Markets and Reducing Road Accidents 35Box 6 Linking the Competencies of Corporate Operations to the Instruments of

ODA60

Discussion Paper – Overview

August 2002


Optimising the DevelopmentPerformance of Corporate Investment

The ODPCI Programme

Funded by


Overseas Development Institute111 Westminster Bridge RoadLondon SE1 7JDTel: +44 (0)20 7922 0300Fax: + 44 (0)20 7922 0399E-mail: [email protected]


All rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted in any form or by any means, electronic, mechanical, photocopying,recording or otherwise, without the prior permission of the publishers.


CONTENTS

Purpose of the ODPCI Programme 13

Structure of Report 13

Conclusions 13Mapping Business Competencies onto Development Priorities 13Linking Corporate Investment and International Development 15Embedding a Core Competencies Approach to Development Performance 16

Overview


There is a wide, andincreasing, range ofpressures oncorporations todemonstrate that theirbusinesses in thedeveloping worldcontribute to thedevelopment priorities ofthe society within whichthey operate.

Purpose of the ODPCI Programme

The purpose of this Discussion Paper (Parts1, 2 and 3) is to provide a rationale forundertaking a new research programme at theOverseas Development Institute (ODI).

The three-year programme will designbusiness management tools to optimise thedevelopment performance of corporateinvestments in developing countries, with aparticular focus on improving the range ofoptions for business operations to contributeto poverty reduction. The UK Department forInternational Development(DFID) have granted seed-funding for the programmein the lead up to ODIsecuring participation andfunding from the privatesector.

The ODPCI programme willwork closely with leadershipcorporations from a range ofinvestment sectors(consumer goods, retail,banking,telecommunications,construction, oil and gas, power, leisure andforestry).

The research is ultimately designed to re-dress the imbalance in the current debate oncorporate social responsibility (CSR) andCorporate Citizenship in developingcountries, from a focus on labour standards,the management of social risks andmitigation of adverse social impacts - forwhich many codes and compliancerequirements are now in place - to theaddition of ‘development value’, which, inthe area of poverty alleviation in particular,has received less attention.

Structure of Report

Part 1 of this paper provides a rationale forthis shift from the management of adverseimpact and risk, to developmentperformance. Part 2 looks for potentiallinkages between corporate investments (asillustrated by foreign direct investment), thedevelopment priorities of the host society andthe aid provided by internationaldevelopment assistance agencies. Ananalysis of the different business modelsavailable for embedding a development

performance management tool withincorporate operations is provided in Part 3.ConclusionsThe report draws a series of conclusions.These are summarised below under threeheadings:

• Mapping Business Competencies ontoDevelopment Priorities;

• Linking Corporate Investment andInternational Development; and

• Embedding a Core CompetenciesApproach to DevelopmentPerformance.

Mapping BusinessCompetencies ontoDevelopment Priorities

1) There are a wide, andincreasing, range ofpressures on corporationsto demonstrate that theirbusinesses in thedeveloping worldcontribute to the

development priorities of the wider societywithin which they operate. These pressuresderive from, inter alia:

• project finance investors, securingagainst investment risk;

• institutional fund managers, seekingevidence that companies are meetingethical criteria for portfolio equityinvestors;

• corporate headquarters, wishing toprotect brand values, assure reputation,present evidence of social performanceto their shareholders and the public, andrecruit and retain staff;

• requirements contained in concessiontender documents and DevelopmentAgreements, for example, foremployment quotas and othercommunity benefits;

• senior management at the operationalbusiness level, who value a durable‘social licence to operate’ that reducesthe risk of production downtimes arisingfrom disruption by local communities;

• local government authorities, who lookto investments in their region as an

Overview


What is missing atpresent is amanagement tool thatsystematically identifiesthe full range ofbusiness resources,skills, capabilities andcompetencies thatcould add value to theefforts of others inmeeting society’sdevelopment priorities,and which carry arobust business-case.

opportunity to deliver on public policycommitments; and

• official and non-governmentaldevelopment assistance agencies, whichrecognise the importance of foreigninvestment in regions of the country inthe context of declining aid flows.

2) These pressures are beginning to widenthe debate on Corporate Social Responsibilitytowards questions about how majorbusinesses can make a positive economic andsocial contribution in poor societies, through,inter alia:

• improved revenuedistribution;

• employment access;• market opportunities for

local companies;• employment

opportunities andtraining for localcommunities;

• provision ofinfrastructure (power,water, sanitation,transportation,communication, schooleducation, health care);

• skills and technologytransfer;

• use of professional project, contract andperformance management techniques;

• environmental protection andmanagement; and

• business ethics.

3) Multi-sector partnerships involvingNGOs, government and/or developmentassistance agencies working alongsidecorporate operations on social issues are arelatively new strategy for corporations todeliver on their commitments to socialresponsibility. Despite some evidence thatsuch partnerships add value for both businessand poverty reduction, many sucharrangements are short lived, or fail, becausewrong assumptions are made by all partiesabout the resource and competencies thateach should, or could, bring. Corporateoperations in particular are essentially ‘flyingblind’, often with no clear idea of what theirparticular role should be in such partnershipsbeyond the provision of funding to NGOs.

4) What is missing at present is amanagement tool that systematicallyidentifies the full range of business resources,skills, capabilities and competencies thatcould add value to the efforts of others tomeet society’s development priorities, and forwhich there is a robust business-case.

5) It will not be sufficient to design such amanagement tool around fixed (i.e. given)indicators of economic impact (as attemptedin the 1970’s and 1980’s to assess the cost-benefit of direct investments). Suchindicators may be important for development,but localised refinement is needed to

determine whether, incontributing to suchindicators, the company ishaving any lasting impacton the society’s uniquedevelopment priorities.This means taking dueaccount of domesticgovernment policy andstrategies for povertyreduction, regionaldevelopment plans andpolicies, and the prioritiesderived from community-based needs and livelihoodassessments completed byNGOs or other civil societygroups.

6) The advantage for companies of takingdue account of existing developmentpriorities is that the approach is likely toincrease the chances of attracting theinternational development agencies,government authorities and civil societyorganisations, as partners. The partnershipapproach is important for corporateoperations since it fosters a sharing of thecost burden and absorbs some of the risksassociated with drawing out the corecompetencies of the business fordevelopmental purposes.

7) Operating companies will increasinglyplace a premium on being able todemonstrate to shareholders and the widerpublic their performance in contributing tothe development priorities of wider society.For this reason, the management tool beingdeveloped through the ODPCI programmewill both:

• assess the current (or projected) positiveimpact of the operation on society’s

Overview


In only seven of theworld’s 70 poorestcountries is it currentlyjustifiable to talk ofannual foreign directinvestment flows“dwarfing” those ofofficial developmentassistance.

Many of the instrumentsof official developmentassistance todeveloping countriesoffer potential forsynergy with theresources andcapabilities of thecorporate sector in thepursuit of society’sdevelopment priorities.

development priorities at the national,regional and local levels, and

• identify opportunities to enhance this‘development performance’ througheither company-led strategies or moreclosely aligning business corecompetencies with those of potentialpartners from international donors,government and civil society.

Linking CorporateInvestment andInternationalDevelopment

8) In Part 2 of the paper,in the poorest developingcountries, foreign directinvestment (FDI) is takenas a proxy for corporateinvestment.

9) Much is made of how FDI currentlyexceeds the aid budgets of foreigngovernments and multi-lateral organisations.In practice 80% of FDI flows to developingnations are concentrated in only elevencountries. Further, in only seven of theworld’s 70 poorest countries is it currentlyjustifiable to talk of annual FDI flows“dwarfing” those of Official DevelopmentAssistance (ODA), namely: Vietnam (ratio3:1), Angola (3:1), Lesotho (4:1), Ecuador(4:1) and Turkmenistan, Azerbaijan andChina (all > 5:1).

10) Between 1996 and1999, 55 (or 79%) of theworld’s 70 poorest countries(ranked by GDP/capita)received flows of ODA inexcess of FDI, with 60%experiencing ODA:FDIratios greater than 2:1.

11) With respect to thepublic policy priorities ofthe poorest developingcountries, FDI currentlymakes a substantialcontribution to a positiveinvestment climate, foreign reserves and localmarket stimulation. The question now iswhether there is a business-case for corporateoperations to contribute to the realisation ofmore ‘poverty-focused’ developmentpriorities, such as affordable communityinfrastructure, local income earningopportunities, access to renewable natural

resources, food security and the preventionand resolution of violence conflict.

12) In Part 2, in the context of achieving arange of development objectives, the relativeperformance of eight different ODAinstruments (budget support, sector support,project aid etc.) are compared to the currentand potential performance of the corebusiness competencies of typical corporateoperations.

13) There are a number oflimitations in trying to linkthe competencies of businessto ODA instruments. Theprincipal constraint is theshift of international multi-and bilateral developmentagencies towards budgetaryand sector support whichtends not to begeographically targeted and

can be of an overtly political nature.

14) Most suited to some form of linkage withthe competencies of corporate operations arethose ODA flows earmarked either forspecific activities within a particular sector ortargeted at specific aid projects. Thisincludes debt relief (when linked to agreedpoverty reduction strategies), sector-earmarked support, most project aid (be thattechnical assistance or grants) andhumanitarian and emergency assistance.

15) In the context of DFID’s ODA, it wouldseem that in the medium term, whilst non-

earmarked budget andsector support is a growingfeature, it is unlikely toaccount for more than 5 to10% of total ODA. Thus,assuming DFID isillustrative of bilateral aid,for the time being at leastthe majority of ODA todeveloping countries wouldseem to offer somepotential for exploringsynergies with the resourcesand capabilities of the

corporate sector.

16) One factor conspiring to reduce theoverall volume of FDI flowing to the poorestcountries of the world, is the high investmentreturn demanded by foreign investors, whichin some sectors (e.g. banking) is approaching25% per year:

Overview


Annual anddepartmental resourceand market-basedstrategic planning mayprovide a more effectivevehicle.

Social impactassessment and riskassessment may needto be rejected asplatforms forembedding a tool thatmaps businesscompetencies ontodevelopmentpriorities.

“We need to achieve higher financialreturns demanded by the privatemarkets…Our strategy is to disposeof the investments in [our]..historicaldebt portfolio….which has hadsignificant developmental value, butis unlikely to meet the financialhurdles that CDC now requires.”Commonwealth DevelopmentCorporation Chairman’sStatement, 2000.

17) In general terms, thefollowing countries haveboth substantial FDI stocksand ratios of FDI:ODA flowsthat might support apartnership approach toimproving the developmentperformance of foreigncorporate operations:

Africa: Angola, Coted’Ivoire, Chad, CDR, The Gambia,Lesotho, Malawi, Mozambique, Niger,Nigeria and Zambia

Latin America: Ecuador, Guyana,Honduras and Nicaragua

Asia: Armenia, Indonesia, KyrgyzRepublic, Moldova and Vietnam.

18) In countries where the total stock of FDIis relatively low in relation to overalleconomic activity, it is erroneous to concludethat FDI is not important foreconomic development. Forexample, although Tanzaniahas only a moderate FDIstock (11.2% of GDP at1999) the country lies in thepoorest quartile of alldeveloping countries, and insome regions of the countrythe population is wholly dependent on theextraction industry as the principal catalystfor economic development - an industryincreasingly dominated by foreign investors.

19) In Nigeria both inward FDI and ODAflows are likely to increase over the next fewyears. The country is well placed to workwith the corporate sector, through socialpartnering, to help meet certain poverty-focused development priorities. Thedominant oil and gas industry remains alikely candidate for piloting the proposedcompetency-development mapping tool. In

addition, anticipated growth in the tele-communications market, and open tendingfor concessions, provides the prospects offoreign telecom corporations looking forcompetitive advantage. A detailed ‘map’showing how the corporation’s businesscompetencies could be integrated with thoseof local aid, government and civil societypartners to meet national and regionaldevelopment priorities could provide bidders

with this advantage.

20) The position of thetourism as a growth sector inVietnam, combined with amarked increase in Westerncorporate interest in thecountry (FDI stocks as apercentage of GDP measuredjust 3.6% in 1990, soaring to55.6% by 1999) and continuedliberalisation of the economyand trade agreements,suggests that Vietnam and the

tourist sector in particular might provide anopportunity to pilot the new managementtools being developed through the ODPCIprogramme.

Embedding a Core CompetenciesApproach to Development Performance

21) Although examples exist of successfulmulti-sector social partnerships involvingcorporate operations in developing countries,the task of replicating these good practicesthrough some systematic management tool,

and then ‘embedding’ or‘mainstreaming’ this toolwithin day-to-dayoperations remains elusive.

22) Part 3 of theDiscussion Paper looks atthe ways in which theproposed competencies

approach to development performance mightbe embedded within conventional businesspractices. Seven business management toolsand approaches are investigated: social andrisk impact assessment, resource and market-based strategic planning, scenario planning,relationship marketing, and three growthstrategies: internal development, acquisitionand strategic alliances.

23) Social impact assessment and local riskassessment tools may need to be rejected asplatforms for embedding a tool that maps

Overview


The current trend forbusinesses to build uptheir internal resourcesand capabilities incommunitydevelopment seems tofly in the face of theconvention on businessgrowth strategies innon-traditional markets.

business competencies onto developmentpriorities. Management responsibility forthese tools generally falls within thecompany’s Health, Safety and Environmentdepartment, and thus:

• are undertaken with little reference toother departments;

• perceived by the rest of the business aslittle more than a compliancerequirement;

• focus on managingsocial risk andmitigating negativesocial consequences,rather than seeking tooptimise developmentperformance, and

• are dominated bymetrics and socialreporting proceduresthat measureperformance in termsof the quality and quantity of ‘activities’,such as consultation or communityparticipation, rather than ‘outcomes’such as the sustainability of communityprojects or improved local governance.

24) Favoured instead are three strategicplanning methodologies: scenario planning,resource/market based strategic planning andrelationship marketing.

25) Scenario planning for new investmentsprovides a unique opportunity to bypass thecurrent and entrenched ‘company-controlled’approach to community development. Abusiness competencies approach tocommunity development and developmentperformance will require a different type ofskill mix than that seen in major corporationsat present. As opposed to being drawn fromNGOs and foreign aid agencies, this new typeof staff member will need experience, not ofcommunity participatory planning orintermediate technology, but of a corebusiness competency, e.g. marketing orengineering, combined with knowledge abouthow these competencies can be dovetailed tothe competencies, skills and resources ofgovernments, NGOs and foreigndevelopment agencies. The supra nature ofScenario Planning offers an opportunity to‘leap-frog’ the inertia to a businesscompetencies/social partnering approach ofdevelopment performance now prevalent in

the community development departments andcorporate social responsibility units ofoperating companies.

26) Resource and market-based strategicplanning are annual features of many of thedepartments within overseas corporateoperations. The approach seems to offer anobvious vehicle for systematically mappingbusiness resources and capabilities onto thedevelopment priorities of the country, regionor locality. On balance, because of the

emphasis on ‘adapting’ thecompany’s existing resource-base to meet market need(rather than inventing newmarkets to better utiliseexisting resources), a‘market-based’ strategicplanning approach wouldseem more appropriate than a‘resource-based’ one.Companies in the FastMoving Consumer Goods(FMCG) sectors lean towards

a market-based approach to strategicplanning and may offer the best chance ofembedding the competencies-developmentmapping tool.

27) Relationship marketing is not in itself amanagement tool, serving more as a modusoperandi. One can apply the principles ofrelationship marketing to stakeholders otherthan customers, such as local communities. Inso doing one should recognise that thebusiness benefits of the approach are likely todiffer considerably. What does seem to holdconstant though, regardless of the type ofstakeholder, is the idea of using on-goingconsultation and communication to designmore targeted goods and services, be theseprivate or public. One can make the case,therefore, that the proposed competencies-development mapping tool is simply anotherform of the already accepted practice ofrelationship marketing.

28) Business growth strategies fall into threebroad categories: internal development,acquisitions and strategic alliances. Thecurrent trend for businesses to build up theirinternal resources and capabilities incommunity development seems to fly in theface of the convention on business growthstrategies in non-traditional markets.

29) It is generally accepted that strategicalliances based on a limited pooling of core

Overview


It is generally acceptedthat strategic alliancesbased on a limitedpooling of corecompetencies, and notinternal development oracquisitions, offers amore cost-effective andless risky approach toimproved businessperformance in new oralien markets.

competencies, and not internal developmentor acquisitions, offers a more cost-effectiveand less risky approach to working in newand alien market environments.

30) Community development in theimpoverished rural andurban areas of poorcountries is a relativelynew corporate activity. Itclearly lies on the marginsof core business, requiringcapacities and resourcesalien to most existing staff.Because the new staffmembers bring suchunfamiliar competencies(community participatoryplanning and businessdepartments, such asengineering andprocurement, see fewopportunities for inter-

mediate technology etc.), most core businesssee little potential for synergies with the newarrivals.

31) Likewise, the new staff membersworking on community development

sometimes often know littleabout the core business orabout business managementpractices in general. Taskedwith pressing on with whatthey do best, i.e. communitydevelopment planning andprojects, there is a tendencyto omit to explore fully whatresources or capabilitiesmight lie in otherdepartments that could becomplementary to thedevelopment priorities of thelocal area.

Discussion Paper – Part 1

Mapping Business Competencies ontoDevelopment Priorities

Rationale for a Dedicated ‘Development Performance’Business Management Tool

Dr Michael Warner

August 2002



The ODPCI Programme

Funded by




All rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted in any form or by any means, electronic, mechanical,photocopying, recording or otherwise, without the prior permission of the publishers.


CONTENTS

Part 1 Mapping Business Competencies onto Development Priorities 23

1.1 Introduction 23

1.2 Re-Thinking Corporate Social Responibility 231.2.1 New Pressures 231.2.2 The Counter Argument 241.2.3 Emerging Evidence of a Business Case 241.2.4 The Need for Greater Systematisation 241.2.5 Examples of Core Competancies 251.2.6 Step Change 25

1.3 Research Output 26

1.4 Linking Business Competencies to New Social Partnerships 261.4.1 Social Partnering 261.4.2 Complementary Competencies 281.4.3 Available Guidance 281.4.4 Selecting Indicators 301.4.5 From Development Evaluation to Development Enhancement 301.4.6 Comparing Social Partnering to Company-led Approaches 341.4.7 Support for a Business Competencies Approach to Development

Performance35

1.4.8 Summary 36

References 37

Figure 1 Framework for Corporate Citizenship 23Figure 2 Development Performance in Relation to Magnitude of Impact on the Poorest

in Society26

Figure 3 Building Blocks of a Competencies-Development Management Tool 33Figure 4 Company-Led Social Investment vs Core Competencies/Partnering 34

Table 1 Evidence of the Business and Development Benefits of Social Partnering (Oil,Gas and Mining Sectors)

29

Table 2 Mapping of Core Business Competencies onto Development Priorities 31

Box 1 Pooling of Core Competencies 25Box 2 Business Case for Social Partnering 28Box 3 Development Case for Social Partnering 28Box 4 Reducing Capital Infrastructure Costs and Building Community Roads 35Box 5 Developing New Markets and Reducing Road Accidents 35

Mapping Business Competencies onto Development Priorities


Part 1 Mapping Business Competencies onto DevelopmentPriorities

1.1 Introduction

Part 1 of this report provides a rationale forre-dressing the imbalance in the currentpractices relating to corporate socialresponsibility (CSR) in developing countries,shifting the focus from the management ofsocial risk and mitigation of negative socialimpacts – for which many codes andcompliance requirements are now in place –to mechanisms that add ‘development’ value.In the area of poverty reduction and socialexclusion, in particular, the question of acompany’s development performance hasreceived far less attention.1 Specificreference is made in this paper to the WorldBank Business Partners for Developmentprogramme and the importance of dovetailingthe more efficient use of the corecompetencies of business operations with thenew approach of social partnering. Figure 1captures the main features of corporatecitizenship, including the concept ofdevelopment performance.

Figure 1 Framework for CorporateCitizenship

1 The exception to this is perhaps in the area of thesupply chain. Some companies are already workingsystematically with local suppliers to strengthen thecapacity of local small and medium scale businesses(SMEs) to exploit market opportunities presented bycorporate operations.

1.2 Re-Thinking CorporateSocial Responsibility

1.2.1 New Pressures

Protests against globalisation from Seattle toGenoa, and effective boycott campaigns,provide evidence of a growing discomfortwith the progress of economic globalisation,and in particular with the conduct of globalcompanies in foreign countries. Regardlessof the merits of individual campaigns, thisdiscomfort underlies some serious questionsabout the magnitude of the socialresponsibilities of corporations in some of thepoorest regions of the world.

Pressures from investors, competitors, otherstakeholders and new international legislationare affecting many corporations. In response,strategic decisions at the corporate level havegone beyond infrastructure concerns aboutaccess to assets, new technologies andcapacity, to include ethical decisions thatrange from questions on the localenvironment, to social cohesion and goodgovernance.

With reputation andoperating environmentsat risk from disgruntledlocal communities, thechallenges are real.Increasingly investmentbanks are incorporatingenvironmental and socialconditionality into loanterms. Pressure groupsare purchasing shares toinfluence strategicdecisions at annualmeetings. Evenconsumers are aware oftheir buying power in theglobal marketplace.Evidence is alsomounting that highersocial standards may

ultimately lead to improved profits, reducedcost liabilities and greater shareholder value.Despite these sticks and carrots, not all agreethat corporations should join the ethical ‘bandwagon’ of corporate social responsibility.

• Local and globalenvironmental quality

• Eco-efficiency• Environmental

technology transfer• Environmental risk

management

CorporateGovernance

• Product safety• Worker safety• Labour standards• Human rights• Equal opportunities

• Corporate values andpolicy

• Transparency andaccountability

• Tackling corruption

Adapted from IBLF, 2002

Environment DevelopmentPerformance

People

• Value chain(suppliers, tradecustomers,consumers)

• Voluntary socialprojects

• Wages• Taxes• Capitalinvestment



1.2.2 The Counter Argument

Some believe that corporate socialresponsibility distorts the market bydeflecting business from its primary role ofprofit generation. David Henderson, theformer chief economist at the Organisationfor Economic Co-operation and Developmentargues that the ‘fad’ for corporate socialresponsibility is doing real harm, privatisingpublic policy and hence removinggovernments from their core responsibility. Arecent editorial in the Economist notes thatgovernments increasingly use regulation toforce companies to pursue “what used to betheir own social ends”; and with regard toforeign operations, that “multi-nationals arenow seen as tools, via fair-trade regulations,to sort out the evils of third-world poverty”(The Economist, 22nd December 2001).

It is not altogether surprising then that somecommentators are beginning to questionwhether the time has not now been reachedwhen governments, corporations and civilsociety organisations should ‘step back’ andre-think corporate citizenship altogether(Zadek, 2001).

1.2.3 Emerging Evidence of a BusinessCase

In recent years a growing body of research onthe positive contribution (i.e. developmentperformance) companies can make throughgreater CSR has been centred around provingthe ‘business-case’ of voluntary socialinvestment programmes, be that in relation toinvestment performance, risk management,competitive advantage, global reputation,staff moral or customer marketing (Zadek,2001; Acutt & Hamman, 2001).

Other aspects of the positive side of CSRinclude empirical work on measuring thepoverty reduction impact of improved labourpractices (ETI, 1998), the work of Bermanand Machin (2000) and te Velde andMorrissey (2001) on the effect of wages onpoverty and research by McKay (2000) onthe impact of trade on poverty.

1.2.4 The Need for GreaterSystematisation

What seems to be missing at present,however – and a conclusion supported by thefindings of the World Bank Business Partnersfor Development programme (BPD, 2002) –is any systematic analysis of the ‘full range’of core business activities (employmentpractices, human resource development,marketing, distribution, infrastructure,advocacy etc.), for different types ofcorporate entities (foreign or domestic), inrelation to the way in which they mightcontribute to the known pathways to povertyreduction (e.g. essential health, primaryeducation, basic infrastructure, goodgovernance, employment, livelihood securityand resilience to ‘shocks’, regional andnational poverty planning etc.).

Some of the work on improving thedevelopment performance of corporationsdepends upon corporation HQs and fieldoperations behaving in ways that mimic bestcurrent practice in environmentalmanagement, human rights and stakeholderrelationships – practices that have beendesigned primarily by and for multi-lateral,bi-lateral or non-governmental aid agencies.There has been little dedicated research onmodels of development performancedesigned around utilising and examining theimpact of the full range of core competenciesand assets peculiar to private or public sectorcorporations – what the BPD programme hasreferred to as a company’s ‘corecomplementary competencies’ (Warner,2000).

There is new evidence that the ‘pooling’ ofcomplementary competencies can be cost-effective (Warner, 2001; Tull, 2001;Copeman, 2001), with each partycontributing resources within their normalrange of activities, thus affecting only their‘variable’ costs rather than introducing new‘fixed’ costs. This contrasts with somecorporations who in the recent past haveinvested millions of dollars developing ‘in-house’ capacity for community developmentand poverty reduction competencies withwhich communities, NGOs and donoragencies have over 50 years of experience,and which, as new ‘fixed costs’ for thecompany, are vulnerable to cut backs in timesof economic uncertainty.



1.2.5 Examples of Core Competencies

This evidence includes a partnershipapproach to the implementation of a healthfacility and outreach programme inVenezuela, which was successful and costeffective because all sectors were responsiblefor, and felt ownership of, a particular part ofits development. The company organised theproject management of construction,providing financing and building materials;the Ministry of Health sponsored training forlocal residents; a regional NGO supplied themedical equipment; and communitiessupplied voluntary labour and food.

A further example is the CARE/TransredesS.A. partnership in Bolivia. CARE (who hasbeen working with Transredes, a Shell/Enronpipeline operating company in Bolivia)recently agreed on a nation-wide strategy toengage with the private sector to form“strategic alliances in order to createsynergies from actors with diversecapacities”.2 As such, the FrameworkAgreement reached between the twoorganisations includes the objective to “takeadvantage of the strengths and resources ofthe company and generate channels ofcommunication between the company and theneighbouring communities.” (ibid.).

In another example, in Zambia, consultantsworking with Konkola Copper Mine toprepare a Social Management Plan, haveadapted the DFID livelihoods framework tomap the impact (both positive and negative)of the core activities of the company’sproposed operations on local society.3 Box 1is an illustration of how the corecompetencies model can work. Taken fromthe aforementioned CARE/Transredespartnership, the table shows the strengths thateach party perceived would becomplementary to each other and to theoverall objective of managing a communitydevelopment programme to compensatecommunities for a major oil spill.

The Business Partners for Developmentprogramme has begun the work of recordingcompanies core competencies in relation tocommunity development (Warner, 2000;Warner, 2001 and Tull, 2001). This is a goodstart, but the exercise has not been systematic

2 CARE Bolivia, 2000-2005 Long Range Strategic Plan3 A dedicated report has been commissioned by DFID(Sustainable Livelihoods Dept) on this case, and as has asynthesis report looking only at the company’s potential‘additionality’ by the Natural Resources Cluster of BPD.

(there is no comprehensive inventory ofcompetencies), has only focused onextractive industries sectors and has madelittle progress in developing a methodology(i.e. a management tool) that will allowreplication of the approach, and be embeddedwithin the management structure of corporateoperations.

1.2.6 Step Change

If we are looking for a ‘step change’ in thepositive impact of corporate investments4 on

4 By corporate investment we mean any major businessoperation over which, due to its part or whole ownershipof that business, a private corporation has a managementinfluence. This would include all four categories ofinvestment cited by Vodaphone: principal subsidiaryundertakings, principal joint ventures, principalassociated undertakings and principal investments; andlikewise include the three categories of corporateinvestment cited by BP: subsidiary, associatedundertakings and joint ventures. Examples of thecomposition of corporate investments include: SafaricomLtd, Kenya's leading mobile telephone provider, 40%owned by Vodafone Group Plc, with the majority of theremaining shares taken by state-owned Telkom Kenya;Barclays Egypt, 60% owned by Barclays plc, and 40%by Banque Du Caire, the state bank; Empresa Petrolera

Box 1 Pooling of Core Competencies:The case of an Oil SpillCompensation Programme

CARE Bolivia• A team with recognised technical and

financial skills.• Strong reputation in the successful

planning and execution of communityprojects.

• Ability to attract at least equal financingto that provided by Transredes and otherresources such as manpower.

• Ability to work in conjunction with localNGOs.

• Use of participatory planning techniquesto promote local ownership.

• Recognition of competency from theBolivian government, municipalities andmultilateral agencies.

• Flexible and pragmatic approach

Transredes• The support, commitment and

participation of senior Transredesmanagement to compensate affectedcommunities.

• Access to funds to assist in the planningand execution of social investmentprojects.

• A strong institutional presence in Boliviawith a reputation for management ofenvironmental and social issues

• Capacity to access the media• Shareholders supportive of social and

environmental management (particularlyShell and Enron).



Social voluntary projects

Profit and royalty taxes

Value chain (suppliers to tradecustomers to consumers)

Wages

Adapted from Unilever, 2001

Core operations(products, product development,production capacity, engineering,project management, marketing,distribution, infrastructure,borrowing, human resources)

Existing productsand services

Developmentadditionality –

the positiveeconomic and

social impact ofthe business on

society

development priorities, and in particularpoverty alleviation, then, with regard to theCorporate Social Responsibility agenda, it isto this area of core business competenciesthat research must now shift.

1.3 Research Output

The principal output of the ODPCIprogramme will be a new management toolfor measuring and optimising developmentperformance. This tool will be embeddedwithin the conventional strategic planningactivities of each business units operating inthe poor countries of the world.

The tool will enable managers tosystematically ‘unpack’ the competencies andresources inherent in their core business thatcould be more creatively deployed to increasethe positive impact of their investment on thedevelopment of society, and in particular thereduction of poverty.

The programme builds on the way in whichcompanies already contribute to povertyreduction through taxes on profit andproduction, wages, compensation and social

Figure 2 Development Performance inRelation to Magnitude ofImpact on the Poorest inSociety

Chaco in Bolivia, owned 30% by BP (the operator), 20%by Bridas Corporation and 50% as portfolio by theBolivian Pension Funds; Unilever Ghana Limited (thelargest manufacturer and marketing company in Ghana),66.6% owned by Unilever plc (through its wholly ownedsubsidiary Unilever Overseas Holdings) with theremaining shares owned by portfolio investors.

impact mitigation,5 and voluntary socialinvestment. Figure 2 provides a simplifiedbreakdown of the different ways in which atypical company contributes to thedevelopment of a society, highlighting wherethe company’s core business operationsmight be being under-utilised.

1.4 Linking BusinessCompetencies to New SocialPartnerships

1.4.1 Social Partnering

The proposed ‘competency-developmentmapping tool’ will form the early, desk-based, component of the new methodology ofsocial partnering, defined as “people andorganisations from some combination ofpublic, business and civil constituencies whoengage in voluntary, mutually beneficial,innovative relationships and activities toaddress common social aims” (Zadek et al,2001). It should be noted that socialpartnering is not about returning the CSRdebate to the paternalistic days whencompanies took over responsibility for theprovision of all public services andinfrastructure in a region. This past approachis clearly not in the interests of either thecompanies (due to cost), domesticgovernment (in that it undermines theirproper role in society), nor the poor (becauseof the risks of creating dependency on the

company for livelihoodsustainability).

Emerging evidence suggeststhat where the operations ofmajor multi-nationalcorporations agree to work inmulti-sector, socially-focused,partnerships with, inter alia,domestic regulators andgovernment developmentministries, foreign governmentdevelopment agencies,diplomatic and trade agencies,project finance investors andfund managers, and civilsociety (communities,development NGOs, tradeunions etc), such ‘partnering’

5 Although compensation and measures to mitigateadverse social impacts are theoretically designed to nomore than restore existing levels of livelihoods, inpractice they often provide additional benefits, at least incash terms. However, the converse is often true whentaken from a livelihood security perspective.



can add value both for the operating businessand for the development priorities of the hostcountry, region or community (Acutt, 2001;PwC, 2001; Stucky et al, 2001; Caplan, et al,2001; Zadek et al, 2001; Warner, 2000).

In support of this, the three-year strategy forthe Socially Responsible Business Unit of theDFID Private Sector Policy Department notesthat the private sector “by itself will notdeliver pro-poor development. That requiresgrowth and equity” (DFID, 2002, p3).Further that “the regulatory and facilitatoryrole of governments and internationalorganisations has increased in importance astrade barriers have come down, and foreigndirect investment increased to dwarf aidbudgets” (ibid p 3).

Achieving a greater positive impact ondevelopment priorities from corporateinvestments will inevitably require changesin the design and management of companies’internal CSR procedures (both at HQ andproject levels), including changes in:

Corporate CSR• corporate policy on sustainable

development;

• the formulation of tender documents;

• the formulation of sub-contracts;

• internal risk taking and relatedincentives;

• internal social reporting processes;

• environmental and social impactassessment procedures;

• approach to social investmentprogrammes, e.g. increased use ofpartnerships.

But it will also require adaptation of the otherprocedures and incentives in society that‘enable’ corporate investments to foster agreater developmental impact. Inter alia, thisincludes:

Domestic Regulators and DevelopmentMinistries• PRSP planning and implementation;• Regional and National development

planning;• tendering criteria;• conditionality of regulators;• PPP contracts.

Investors• expectations of shareholders and related

SRI fund management;

• compliance requirements andconditionality of investor institutions.

Foreign Official Aid, Diplomatic and TradeAgencies• advice given to companies in preparing

tender documents;

• role of development assistance agenciesas facilitators;

• multi-lateral international codes ofconduct;

• international social reportingrequirements;

• trade rules, e.g. TRIMS if relevant;

• criteria adopted in of business assistanceprogrammes, e.g. business linkage funds/support; PPP support.

Civil Society• leadership and organisation of

employees/ trade unions;• capacity of local SMEs;• brokering role of NGOs;• institutional and negotiation capacity of

communities.

Regarding the business case, the value addedof social partnering can be derived bycomparing the business outcomes ofpartnering against the outcomes generatedwhen an operating company seeks to managesocial issues either alone, or throughoutsourcing to local NGOs consultants or alocal Foundation. A summary of the range ofbusiness value drivers for social partnering isprovided in Box 2.6 On the development sideof the equation, the potential benefits ofsocial partnering are summarised in Box 3.

Table 1 provides some quantitative evidenceof business and development benefits forthree different partnership arrangements.

6 Drawn from the World Bank Business Partners forDevelopment programme, 1999 to 2002 (Mitchell,Shankleman and Warner, 2001).



Box 3 Development Case for Social Partnering

greater political capital and incentives to releasecorporate tax and royalty revenues to region ofoperations support to democratic process through alignmentof business-led community development programmeswith local and regional development plans and nationallevel poverty reduction strategies Through involvement of NGOs, compensation andimpact mitigation measures aligned closer tohousehold livelihood security stimulation of local markets and greater access tosupply chains for local SMEs through involvement ofcompany in design of vocational training and inprovision of venture capital; faster time-to-benefit for community projects; access to essential infrastructure: water supplies,roads; power and health services, through innovativePPP arrangements that incorporate civil society aspartners; greater sustainability of infrastructure throughtransfer of maintenance and project managementcapacity from the company, combined with user feesregimes (established by NGOs) between communitiesand local government authorities development of community institutions, and theirmanagement and negotiation skills, leading to greateraccess to ‘organs of the state’ greater visibility of local government dischargingits civic responsibilities reduced risk of disputes escalating into violencedue to increased communication and understandingbetween non-traditional parties

Box 2 Business Case for Social Partnering

• improved global reputation in being more‘visible’ in contributing to sustainabledevelopment across the wider region ofoperations;

• improved social risk prevention and moredurable social licence to operate arising fromimproved knowledge of operating environmentand channels of communication withgovernment, local NGOs and communitygroups;

• reduced security costs (see above);• reduced operational costs of meeting

compensation and social impact mitigationrequirements, due to lower costs of workingthrough NGOs;

• leverage of community development resourcesfrom NGOs, donors and government (centraland local);

• reduced risk of future social liabilities fromcommunity dependency during time ofcommercial uncertainty (exploration, fall incommodity prices etc.)

• cost savings on project infrastructure due tocost sharing (or tax breaks) with central or localgovernment

• improved competitive advantage when biddingfor new concessions

• improved health and related productivity ofworkforce

• secure and reliable supply chain• staff recruitment and retainment

1.4.2 Complementary Competencies

As referred to earlier, what has been missingfrom the partnering model to date issufficient attention to the complementarity ofcompetencies across the business, civilsociety and government sectors. Although,tools to build and manage the negotiationaspects of social partnering are now fairlywell advanced. For example, the WorldBank’s Business Partners for Developmentprogramme and others have designed andtested a suite of negotiation and brokeringtools aimed at breaking down the barriersbetween the three sectors of society(business, government and civil society) andbuilding consensus for joint action. What hasbeen lacking is any systematic assessment ofthe full range of competencies and resourcesof different corporate sectors with respect totheir direct (or indirect) impact ondevelopment priorities and poverty reduction.

Currently, many social partnerships involvingcorporate operations fail because wrongassumptions are made by all parties about theroles each other should, or could, play.Corporate operations, in particular, areessentially ‘flying blind’, encouraged byofficial development agencies such as theWorld Bank, CIDA and DFID, to participatein partnering negotiations, but with no clear

idea of what their particular role should bebeyond the provision of funds.

1.4.3 Available Guidance

The opportunity for companies to more fullyutilise their core business competencies tomeet social objectives is highlighted in themost recent set of guidance on sociallyresponsible private sector developmentpublished by the International FinanceCorporation (IFC, 2000, p13). The documentsites the following company business skillsand resources that may contribute to effectivecommunity development:

• ability to generate incomes, jobs andwealth for local communities;

• managerial skills;• planning skills;• financial skills;• market analysis capabilities;• marketing and communication skills;• product donation• donation of premises/office equipment;• human resources development;• training.



Table 1 Evidence of the Business and Development Benefits of Social Partnering (Oil, Gasand Mining Sectors)7

Project Las Cristinas, Gold mine,Venezuela$500 million (deferred)

Sarshatali coal mine,West Bengal, India$850 million

Transredes (pipeline),Bolivia$800 million

Sponsor MINCA (Placer Dome) ICML(RPG/CESC) Transredes (Shell)

Partners Health Care• MINCA• 9 x local communities• Local and regional

health authorities• International NGO• local SMEs• National Guard

Resettlement andRehabilitation• ICMLO/ESC• 3 x Communities• Local NGO• Regional NGO• District government

Oil Spill Compensation• Transredes• CARE Bolivia• Municipal govt

Most likelyalternative topartnershipapproach

Payment of salaries for 2 xDoctors

Tube wells and vocationaltraining implemented by in-house social team

Compensation programmemanaged by ‘in-house’consultants

Business Benefits

Cost-effectivenessof socialinvestment

Leverage $2.5m (ratio 1:4) 35% cost saving($486,000) over two years

Investmentriskmanagement

Security cost saving$700,000 (75%/y)

SLO–reduced disruptions(e.g. road blocks) arisingfrom compensationprogramme

Capitalinfrastructure

Cost saving of $220,000(25%) through PPP withDistrict Government forconstruction of 11 km mineexcavation road

Competitiveadvantage

Potential social contributionsa material consideration inwinning new concession

Access to project finance

Corporatereputation

Zero future cost andreputation liabilities

Reversed adverse mediaimage

Development Impact

Access toessentialinfrastructure

Cost saving to governmentof $660,000 (75%) on roadconstruction

Access toprimary healthcare

Leverage $2.5 million forhealth services, pop 12,000(govt:others ratio 1:5)

Community groupsregistered, with access togovernment funds

Goodgovernance

Local administration more‘visible’ in discharging civicduties

Administrative Committee(comm + municipal govt)fosters skills transfer togovt extension staff

Conflictprevention

Reduced troop assignmentsof National Guard: $300,000million (75%/y) saving

7 Sources: Warner, 2000; Copeman, 2001; Hammon and Accutt, 2001



However, the guidance offers nomanagement tool or tools to link thesecompetencies and skills to national or localpoverty reduction priorities, nor methods forassessing the business-case for theirdeployment, nor how the contribution of corebusiness competencies might be enhancedthrough social partnering.

Specific guidance for the extractive and waterindustries, generated by the Business Partnersfor Development programme, goes a littlefurther, identify how competencies acrossdifferent actors (regulators, local government,business, NGOs etc.) might be fitted togetherin the most complementary manner (Warner,2001; Caplan et al, 2001).

However, no detail is provided on the type ofmanagement tool needed to systematicallyassess the merits of these differentcompetencies, and identify which make themost contribution towards meeting particulardevelopment priorities, be these at the localregional or national level.

Building on these initial sets of guidance(IFC, 2001; Warner, 2001; Caplan et al,2001), Table 2 highlights some of thepotentially under-utilised core competenciesof corporate operations for differentindustrial sectors, and shows how they mightbe ‘mapped’ onto development priorities ofthe host country, region or community.

1.4.4 Selecting Indicators

The emphasis on national, regional andcommunity development ‘priorities’ in Table2 is important. It is not sufficient to develop amanagement tool that simply lays down fixed(i.e. given) indicators of economic impact.The World Bank has long been evaluatingprojects on the basis of their contribution tocommon indicators such as: capital flows,profits and dividends, taxes, wages, staffdevelopment, new products and services,suppliers and economic multiplier effects(IFC, 2000). These indicators ‘may’ beimportant but some refinement is needed todetermine whether contributing to suchindicators has any bearing on the pro-poordevelopment priorities of the country, regionor locality of operations.

The ODPCI programme will therefore lookfor ways to measure the developmentperformance of a business operation againstindicators drawn from national level poverty

reduction strategies,8 regional developmentplans and community-based livelihood andneeds assessments. Where possible, theinternationally agreed MillenniumDevelopment Goals will also be considered.

1.4.5 From Development Evaluation toDevelopment Enhancement

The management tool will thus enable asystematic evaluation of the current andprojected contribution of the operation todevelopment priorities. However, this is onlypart of its functionality. More important willbe to use the assessment to identifyopportunities to ‘improve’ the contribution ofthe operation to development, i.e. to enhanceits development performance. This is wherethe systematic unpacking of the operation’score business competencies, combined withthe search for value-adding partners, becomescritical.

Note that not all the opportunities identifiedto more fully utilise the operation’s inventoryof resources and competencies will carry aclear business case. In the ‘marginal’ cases,social partnering that may provide a means tostrengthen the business benefits, either bysharing the risks or cost with business, or byleverage in resources that increase the overalldevelopment impact.

Figure 3 shows the basic building blocks of amanagement tool that both classifies thedevelopment contribution of a businessoperation and identifies an inventory of corebusiness competencies that map ontonational, regional and local developmentpriorities and which carry a business case andoptimise the use of social partnering.

8 The preparation of Poverty Reduction Strategy Papers(PRSPs) will increasingly be required by poor countriesif they wish to access soft loans from the World BankGroup or funds allocated for debt relief to (ODI, 2001).The role of the corporate sector in contributing to thedesign of these plans or their implementation is currentlypoor. The ODPCI programme will look for imaginativeways to link the CSR practices of the corporate sector toPRSPs. For example, a recent conference on progresswith PRSPs in Senegal underscored the importance ofimproving governance and accountability at the regionaland local level, as a principal pathway to povertyreduction (Bretton Woods, 2001). Thus, for example, ifthe in-house health and HIV programmes of corporateoperations can be aligned with the efforts of others (e.g.district health authorities and health-based NGOs), thecompany may provide the necessary ‘trigger’ toconcurrently release funds through the PRSP system andimprove transparency and accountability in localgovernment.



Table 2 Mapping of Core Business Competencies onto Development Priorities

Core Business Competencies andResources

Relevant Industrial Sectors Development Priorities

Macro Economic Development

• Transparency in concession biddingand facilitation payments

• Ethical standards

• Transparency in balance sheetaccounting

• Influence of project operators, andother corporate and project financeinvestors, over state shareholders

• Leverage over regulators if allsectors agree uniform level oftransparency in concession biddingand taxation regimes

• Major oil, gas and miningcorporations

• Major infrastructure companies(power, water,telecommunications,transportation)

• Major manufacturers (withcaptured export market)

INVESTMENT CLIMATE

• Increased flow of ForeignDirect Investment

• Reduced investment risks(political and social)

• Regulatory framework for fairdistribution of tax revenues

• Any activity that triggers HIPC fundsto be released through PRSPs • As above

DEBT REDUCTION

• Direct budget support

• Access to HIPC debt reliefRegional Development

• Products and services procurement

• Contract design and management

• Assurance of supply chain quality

• Project and business management

• Market research

• Borrowing capacity

• Access to land or leverage over landtenure

• Technical skills applicable to localmarkets (e.g. electrical andmechanical engineering, service andadministration etc.)

• Human resource development andtraining

• Industries where procurement canbe sourced locally, e.g. textiles,primary industry, somemanufacturing

• Newly privatised industries orindustries with short life-cycles (i.e.where retrenchment is likely to behigh)

• Industries that carry out marketresearch in-country

• Industries with in-house vocationaltraining programmes, e.g. textiles,manufacturing

MARKET STIMULATION

• Regional enterprisedevelopment

• Affordable venture/ workingcapital

• Vocational training

• Business managementtraining

• Managing retrenchees

• Design, construction andmaintenance of major infrastructurefacilities that dovetail with LocalDevelopment Plans and Policies(dams, power generation, powerdistribution, water & sanitation,transportation, telecommunications)

• Implementation of temporaryinfrastructure (water, power, roadsetc.) that dovetail with LocalDevelopment Plans

• Design, construction andmaintenance of health facilities

• Procurement and contractmanagement

• Project and budget management

• All major engineering companiesengaged in design, financing,building, operating or transfermajor infrastructure projects

• Oil, gas and mining operations thathave significant infrastructurerequirements

• Main contractors (and principal subcontractors) whose temporaryinfrastructure, employment profileand skills base are likely to bemore relevant to regional priorities

• Industries with experience inproject management andtransparent budget managementand accounting

GOOD GOVERNANCE

• Transparency in managementof public funds at regionallevel

• Responsiveness andrepresentativeness of publicpolicy



Core Business Competencies andResources

Relevant Industrial Sectors Development Priorities

• As above • As above ACCESS TO ESSENTIALINFRASTRUCTURE

(power, water, transportation etc.)

• Affordable and sustainable inlong-term

• Proximate to localcommunities

• Services relevant to livelihoodsecurity

• Security policy

• Contracting of security guards

• Ethical standards

• Influence of project operators, andother corporate and project financeinvestors, over state shareholders

• Requirements for stakeholderconsultation and dialogue

• Oil, gas and mining

• Logging companies

• Any industry located in a zone ofviolent conflict

CONFLICT MANAGEMENT

• Resolution of economicgrievances

• Prevention of violence

Community Development

• Health care for employees

• Water supply and sanitation

• Marketing and advertising

• Distribution networks

• Pharmaceutical companies

• Industries with their owndistribution networks

• Industries that provide health carefor their employees

• Industries that require water supplyand sanitation provision, eitherlong-term or through temporaryconstruction works such ashousing for construction workers

ACCESS TO HEALTH CARE

• Health awarenessprogrammes (e.g. HIV, STDsetc.)

• Access to essential healthcare services

• Access to clean water

• Sanitation and safe wastedisposal

• Philanthropy (scholarships andgrants to schools)

• Human resource development (in-house training)


• Contract design (i.e. can requirecontractors and subcontractors toconstruct education facilities)

• Marketing and advertising

• Access to print or broadcasttechnology

• Almost any industry located in acommunity (urban or rural) with loweducation attainment levels

• Industries who manage sub-contractors

• Manufacturing and retailcompanies with marketing andadvertising budgets

• Industries with in-house print orbroadcast technology, e.g.newsletters, radio

ACCESS TO EDUCATION

• Affordable access to primaryeducation

• Long-term maintenance ofeducation fixed facilities

• Long-term funding for teachingstaff and equipment


• Direct employment – particular ofmanual and semi-skilled labour

• Procurement management andcontract design

• Indirect employment, throughcontractors and sub-contractors

• All industries that procure servicesor materials locally

• Oil, gas, mining and engineeringcompanies (that rely on contractingfirms)

• Main contractors and principal sib-contractors, who can elect tosource labour locally

IMPROVED INCOME EARNINGOPPORTUNITIES

• Long-term employment

• Employment for women, youthand vulnerable groups

• Land ownership

• Leverage over land tenure

• Banking services (deposits andloans)

• All industries that acquire or leaseland on a permanent or temporarybasis, especially those that utiliseonly a fraction of the acquired/leased land area

• Retail banks

ACCESS TO RENEWABLENATURAL RESOURCES

• Land tenure and ownership

• Access to forest products

• Access to lines of credit



Figure 3 Building Blocks of a Competencies-Development Management Tool

Examples ofbusiness

competencies for ahealth care theme

• contractmanagement

• companymedics

• transportation• marketing• staff training• refrigeration• procurement• employment

health visitconditionality

Business Case

1. healthy workforce2. secure supply

chain3. social reporting

evidence4. global reputation5. brand value6. staff recruitment7. reduced security

costs8. SLO9. reduced

downtimes10. reduced capital

costs (P)11. competitive

advantage12. compliance

3

Resource contributions



Core Business Competencies

(Resources, capabilities, assets etc.)• Department A• Department B• Department C

4

Tool Deliverables

20 page report completed in five days inventory of core business competencies relevant tosociety’s development priorities,

inventory scoped for business-case resource contributions costed value for money assessment made against businessperformance indicator/s

level of inter-dependency on external partners identified best guess partners and resource inputs identified

t

5

Desk-Based Partnering

Best guess potential partners fromgovernment, international aidagencies, NGOs and communitieswith competences or resources thatcomplement those of the business,and secure the anticipatedperformance benefits.

6

Competency-Development Themes 2

• Outcomes• Output/Performance (with threshold indicators)• Input specification: resources, capabilities, assets

Theme 2 Theme 3Theme 1 Theme 4

Development Priorities

• National poverty reduction policy• Regional Development Plans• Community Assessments

1



1.4.6 Comparing Social Partnering toCompany-led Approaches

The rationale for a company contributing itscore competencies through partnerships canbe broken down as follows:

• Core: contributions by each partner thatassist the company meet its businessobjectives, for example, compliance,marketing, competitiveness, riskmanagement etc;

• Competencies: resources, skills,capabilities or behaviour that are the truestrengths (sometimes hidden) of thecompany in contributing to thedevelopment, and in particular povertyreduction, priorities of the host country,region or community;

• Complementary: competencies thatwhen pooled with the competencies ofothers in society (central and localgovernment authorities, civil societyorganisations, multi- and bi-lateraldevelopment assistance organisations)increase the business case and/ordevelopment impact.

The advantage of linking a ‘corecompetencies’ approach to developmentperformance, with social partnering isdemonstrated schematically in Figure 4. Thediagram shows how, in the oil and gas sector,a company electing to lead a programme ofvoluntary community projects (i.e. socialinvestment), might contrast with an approachbased on using the companies corecompetencies in partnership with governmentand civil society.

From the business perspective, the principaldifference between the two approaches is inthe range of business benefits that results.Beyond risk management and globalreputation (benefits already accruing tocompanies such as BP and Royal Dutch/Shellwhere they have implemented company-ledsocial programmes in the region ofoperations) the core competencies plus socialpartnering approach can lead to additionalbenefits. These include: reduced socialliabilities; improved competitivenessreduced; infrastructure costs; and new marketdevelopment. Illustrations of the latter twotypes of benefits are provided in Boxes 4 and5, respectively.

Figure 4 Company-Led Social Investment vs Core Competencies/Partnering

Business Case• reduced social risk• reduced social

liabilities• improved

competitiveadvantage

• new markets

Business Case global reputation

reduced social risk

PartneringLeverage ofresources fromgovernment, civilsociety and donors

Company-ledVoluntaryprojects

Poverty Reduction• local business development• primary infrastructure• essential services (health)• local institutions

Project investmentE.g. $1billion over 20 yrs

Social InvestmentE.g. $10million over 20 yrs

Poverty Reduction• Scholarships and

educational materials• Micro credit schemes• Youth skills training

Low sustainability

Weak governance

Core competenciesSelected corecompetencies andresources

High sustainability

Good governance

•

•



Box 5 Developing New Markets andReducing Road Accidents

In Soweto, South Africa, 40 school children outof every 1000 are involved in road accidentseach year. With the support of the localauthorities, 3M provided reflective strips to besewn into the uniforms of school children. Alocal NGO facilitated the participation of childrenand parents from a ‘pilot’ school. At low cost tothe company the programme has concurrentlyreduced road-related injuries and opened up anew market. Together with the school, localgovernment officials and 3M representatives,the success of this ‘pilot’ was showcased atMinisterial level, with the aim of promotingnew government policy that would requirereflective material to be incorporated into allchildren’s clothing in ‘accident hot spots’ acrossthe country.

Brett Bivans, pers comm. Jan 2002., SecretariatCo-ordinator for the Global Road Safety Programme, Red

Cross, Geneva

Box 4 Reducing CapitalInfrastructure Costs and BuildingCommunity Roads

In June 2000, ICML (a coal miningsubsidiary of the Indian corporationRPG) instigated a partnershiparrangement with the Public Worksdepartment of the District Governmentand local community leaders. Thethree parties collaborated on the designand construction of an 11km rural linkroad, leading to a 25% capital costsaving to the company, and a 75% costsaving to government. The companyalso transferred all road maintenanceresponsibility to the government, inreturn for paying a road toll for vehicleuse. A remote population of 5,000 nowhave the prospect of rapid access tomarkets, schools and health services.

BPD, 2002

1.4.7 Support for a BusinessCompetencies Approach toDevelopment Performance

Although relatively new as a concept, theidea of systemically assessing the full rangeof core business competencies for theirpositive impact on development priorities isgathering momentum. Beyond the IFC (2000)reference to unpacking conventional businessskills and resources for communitydevelopment, other programmes lendingsupport to the concept include the following:

• the importance of core businesscompetencies is captured in the synthesisreport prepared on the lessons of thethree-year BPD programme: “As ageneral rule, the closer participants’activities and benefits align with theircore activities, the more likely thepartnership’s overall chance of success”(PwC, 2002, p3);

• a link between core businesscompetencies and social partnering ismade in a recent policy paper of DFID(Strategy for the Socially ResponsibleBusiness Unit, Private Sector PolicyDepartment, DFID): “what seems towork best is when companies’ corecompetencies (employment practices,ethical standards, knowledge andinformation, human resources, supplychain, infrastructure, marketing,distribution networks, advocacy etc.) are

dovetailed with the competencies ofothers in society”;

• in broad terms, a management tool thatmaps business competencies ontopoverty priorities, is one way to deliveron Policy 7 of the OECD Guidelines forMulti-National Enterprises (OECD,2001), which require corporations thatare publicly listed in OECD countries toabide by certain codes of good practice,including the application of “effective…management systems that foster arelationship of …mutual trust betweenenterprises and the societies in whichthey operate”;9

• the Commonwealth Business Council(which promotes trade and investment incommonwealth countries), notes theimportance of distinguishing betweencorporate citizen activity that is: (a)intrinsic to the running of the company;(b) a form of investment in assets that aremutually beneficial for both companyand wider society; and (c) a form ofsocial investment in public goods thathas no direct bearing on the companiesoperations. The Council holds the viewthat “the most important category for any

9 Other relevant policies in the MNE Guidelines include:Policy 1–Contribute to …social progress with a view toachieving sustainable development; Policy 3–Encouragecapacity building through close co-operation with thelocal community including business interests; and Policy9–Encourage business partners, including subcontractorsand suppliers to apply the OECD Guidelines



company is [corporate citizen] activitythat is intrinsic to the running of itsoperations” (p8), i.e. its core businesscompetencies; and

• The DFID Sustainable LivelihoodsDepartment has noted the potential for amanagement tool that maps businesscompetencies onto developmentpriorities to be developed with referenceto the Sustainable LivelihoodsFramework.10 Key areas of potentialinclude:

rolling-out the company’s physicalinfrastructure (e.g. health care, watersupply, energy generation,telecommunications, transportationetc.) to promote access by poorcommunities to ‘physical capital’;the company contributing humanskills development (both directly andthrough multipliers) to strengthen‘human capital’ in the region;enhancing income generationopportunities through supply chainmanagement and providing orfacilitating access to financialservices i.e. improving households’access to ‘financial capital’;contributing to building socialcapital through improved stakeholderconsultation, trade-union relationsand relationship marketing; and themore imaginative use of acompany’s access or influence overto land and natural resources (bothabove and below ground) toencourage community access to‘natural capital’;

the concept of ‘transformationalstructures and processes’ might beaccommodated within the mappingtool to help identify which value-adding organisations fromgovernment and civil society need tobe attracted into a partnershiparrangement to ensure that thecompany’s competencies have theiroptimal positive impact on povertyreduction; and

10 A case-example of this type of use of the LivelihoodsFramework has already been published by DFID (DFID,2001). The case summaries how consultants for anAnglo American copper mining project in Zambiautilised the DFID Livelihoods Framework to investigatethe positive contribution the company resources andcompetencies could make to local society.

exploring the positive impact ofbusiness competencies on thevulnerability of poor people toexternal shocks such as naturaldisasters, conflict and economiccycles.

1.4.8 Summary

The ODPCI programme is about betterpreparing companies for the negotiations thatlead to new forms of social partnering. Themanagement tools developed through theprogramme will aim to provide companieswith an inventory of business competenciesand resources which not only make a positivecontribution to national, regional and localdevelopment priorities and povertyalleviation, but also complement, rather thanduplicate or undermine, the programmes,resources and competencies of governmentand civil society.



References

Acutt, N. & Hamman, R. (2001) Towards Evidence of the Costs and Benefits of Tri-SectorPartnerships, Working Paper No. 10, London: c/o CARE International, Natural Resources Cluster,Business Partners for Development

Berman, E. & Machin, S. (2000) Skilled-Based Technology Transfer: Evidence of Factor-BiasedTechnological Change in Developing Countries. Boston: Boston University, Department ofEconomics.

BPD (2002) Partners for Progress: The New Strategic Alliance between Corporations,Governments and Communities in the Developing World (forthcoming)

BPD (2002) Tri-Sector Partnerships for Managing Social Issues in the Extractive Industries –Sarshatali Coal Mining Project – Update. London: Natural Resources Cluster, Business Partnersfor Development, c/o CARE International UK

Bretton Woods (2001) Update 25. Washington DC: World Bank Group

Caplan et al (2001) Flexibility by Design: Lessons from Multi-Sector Partnerships in Water andSanitation Projects. London: c/o Water Aid, Water and Sanitation Cluster, Business Partners forDevelopment.

Commonwealth Business Council (2001) Business in Society: Good Corporate Citizenship in theCommonwealth, London: Commonwealth Business Council

Copeman, V. (2001) Tri-Sector Partnerships for Managing Social Issues in the ExtractiveIndustries - CARE/Transredes Partnership, Bolivia, London: Natural Resources Cluster, BusinessPartners for Development, c/o CARE International UK

DFID (2001) Business and Poverty: Integrating the Sustainable Livelihoods Approach withCorporate Citizenship. London: Department for International Development

DFID (2002) The Socially Responsible Business Team Strategy Plan. London: Department forInternational Development, Private Sector Policy Department

Economist, The (2001) The Future of the Company: A Matter of Choice, The Economist,December 22nd

ETI (1998) The Base Code. London: Ethical Trading Initiative.

IFC (2000) Results on the Ground: Assessing Development Impact. Washington DC: InternationalFinance Corporation

IFC (2001) Investing in People: Sustaining Communities through Improved Business Practices: ACommunity Development Resource Guide for Companies. Washington DC: International FinanceCorporation, Environment Division

Mitchell, J., Shankleman, J. and Warner M (2001) Measuring the “Added Value” of Tri-SectorPartnerships. Working Paper No. 14, London: Natural Resources Cluster, Business Partners forDevelopment, c/o CARE International UK.

Maxwell, S. (2001) ‘WDR 2000: Is There a New Poverty Agenda?’, Development Policy Review,19(1) pp143-149

McKay, A., Winters, L.A. & Kadir, M. (2000) A Review of Empirical Evidence on Trade, TradePolicy and Poverty. London: DFID Background Paper for CREDIT.



ODI (2001) “Key Findings on PRSPs to Date”, (various papers) London: Overseas DevelopmentInstitute.

OECD (2001) Guidelines for Multi-National Enterprises (revised). Paris: Organisation ofEconomic Co-operation and Development.

PwC (2002) Putting Partnering to Work: Tri-Sector Partnership Results and Recommendations,London: Price Waterhouse Coopers.

PwC (2001) untitled (draft analytical synthesis of lessons from the Business Partnerships forDevelopment programme) London: Price Waterhouse Coopers

Stuckey, J., B. Durr, and G. Thomas (2001) Partnership Principles: What We Have LearnedAbout Partnering and Institutional Capacity Building Concepts. Atlanta: CARE USA, Partnershipand Household Livelihoods Unit.

Tull, J. (2000) Tri-Sector Partnerships for Managing Social Issues in the Extractive Industries -Las Cristinas Gold Mining Project, Venezuela, Health Care Partnership. London: NaturalResources Cluster, Business Partners for Development, c/o CARE International UK

Unilever (2000) Unilever’s Approach to Corporate Social Responsibility.

Warner, M. (2000) Tri-Sector Partnering to Manage Social Issues in the Extractive Industries:Guidance Note for “Getting Started”, Working Paper 6. London: Natural Resources Cluster,Business Partners for Development, c/o CARE International UK.

Warner, M. (2001) Tri-Sector Partnerships for Managing Social Issues in the ExtractiveIndustries – Sarshatali Coal Mining Project. London: Natural Resources Cluster, BusinessPartners for Development, c/o CARE International UK.

Te Velde, D. & Morrissey, O. (2001) ‘Foreign Direct Investment and Poverty’, Proposal to DFID.London: Overseas Development Institute.

Zadek, S., Hojensgard N.& Raynard, P. (2001) ‘The New Economy of Corporate Citizenship’,pp13-32 in Zadek et al (eds) 2001 Perspectives on the New Economy of Corporate Citizenship,Copenhagen: The Copenhagen Centre.


Linking Corporate Investment andInternational Development

Scoping the Opportunities

Michael Warner, Jon Fowler and Dirk Willem te Velde

August 2002



The ODPCI Programme

Funded by


Overseas Development Institute111 Westminster Bridge RoadLondon SE1 7JDTel: +44 (0)20 7922 0300Fax: +44(0)20 7922 0399E-mail: [email protected]




CONTENTS

Part 2 Linking Corporate Investment to International Development 43

2.1 Introduction 432.1.1 Positioning the ODPCI Programme in the Debate on Economic

Globalisation43

2.1.2 Do Corporate Operations Contribute to Poverty Alleviation? 432.1.3 Foreign Direct Investment (FDI) as Proxy for Corporate Investment 452.1.4 FDI, Growth and Poverty 462.1.5 FDI and the Decision to Invest 46

2.2 FDI and ODA - Myths and Truths 462.2.1 FDI in Developing Countries 462.2.2 FDI as a Feature of Economic Activity 472.2.3 Contributing to Development Priorities: FDI vs ODA 522.2.4 Limitations 582.2.5 Factors Constraining the Development Performance of FDI 592.2.6 Ratios of FDI to ODA 60

2.3 Industrial Sectors 652.3.1 Introduction 652.3.2 Aggregated Data 652.3.3 Sectoral Composition in Selected Countries 652.3.4 FDI data at Company Level 65

2.4 Market Projections 662.4.1 Nigeria 662.4.2 Vietnam 66

References 71

Figure 5a Distribution of the Total Added Cash Value - Vodafone 44Figure 5b Distribution of the Total Added Cash Value - Unilever 44Figure 5c Distribution of the Total Added Cash Value - Barclays 45Figure 5d Distribution of the Total Added Cash Value - BP 45Figure 6 Total Global Inward FDI Stock, 1999, by Region 47Figure 7 Inward FDI Stocks for Developing Countries, 1999 48Figure 8 Inward FDI stocks as %GDP, 1999, for developing countries ranked by

increasing/decreasing GDP per capita (part 1 of 3)49


62

Figure 10 FDI Inward Stock by Industry and Region (LDCs) 1999 ($m) 65Figure 11 Number of Fortune 500 Companies Present in the Poorest Developing

Countries70

Figure 12 Presence of Selected MNEs in Developing Countries 70

Table 3 Developing Countries with the High FDI Stocks Relative to GDP (1999) 48Table 4 Generalised Inventory of the Development Priorities of ODA in Poor

Countries53

Table 5 Contributions to Development Priorities from Corporate Operations andODA Instruments

54

Table 6 Trends in DFID ODA 59Table 7 Ratio of FDI:ODA, for the 70 Poorest Countries 61Table 8 Industrial Sectors Most Relevant to Selected Countries (based on GDP) 68Table 9 The largest 30 MNE Foreign Affiliates in LDC (1999) for which data exist 69

79

Box 6 Linking the Competencies of Corporate Operations to the Instruments ofODA

58

Linking Corporate Investment and International Development


Part 2 Linking Corporate Investment to InternationalDevelopment

2.1 Introduction

This part of the paper explores how theinvestments of corporations in the world’spoorest countries might be more effectivelylinked to the efforts of internationaldevelopment agencies in delivering thedevelopment objectives of the host society.Using secondary data, and with foreign directinvestment (FDI) as a proxy indicator,conclusions are drawn on the relative volumeof FDI flows to developing countries; therelationships between these flows, GDP andofficial development assistance (ODA); thepotential for synergy between thecompetencies of corporate operations anddifferent ODA instruments; and the types ofindustrial sectors most relevant todevelopment in particular countries.

2.1.1 Positioning the ODPCIProgramme in the Debate onEconomic Globalisation

A recent policy paper of the UK Departmentfor International Development (DFID 2000)embraces the positive role that economicglobalisation can make in eliminatingpoverty. The White Paper emphasises a dualapproach to achieving this goal, combiningeconomic growth with the equitabledistribution of benefits. Specifically itemphasises the need to:

• exploit opportunities presented byprivate sector investments to meet theInternational (Millennium) DevelopmentTargets (Goals)11 and integrate with thepreparation and implementation ofdonor-sponsored Poverty ReductionStrategy Papers;

• create an enabling environment forprivate sector wealth creation thatpromotes poverty reduction andsustainability;

• optimise the lines of responsibility andrisk between state and private sector; and

11 For details of these targets see:www.dfid.gov.uk/sid/Indicators/mdgs.htm

• find new ways for DFID to work withthe UK private sector

The above policies are supported by therecent World Development Report (WDR)(World Bank, 2001) of the World BankGroup. This report marks a considerable shiftin World Bank thinking. The pathway topoverty reduction is no longer defined interms of a combination of labour-intensiveeconomic growth and safety nets (the mainthemes of the 1990 WDR), but a more multi-functional definition of poverty whichcombines making markets work better for thepoor, empowering state institutions to bemore responsive to poor people, and reducingthe risks and vulnerability of the poor byenhancing their access to assets, in particularsocial capital (Maxwell, 2001).

The new ODI research programme onoptimising the development performance ofcorporate investment (ODPCI) aims to reflectthis dual shift move towards continuing tosupport the role of markets and yet makingthese markets more accessible to the poorthrough enhancing the direct, catalytic andfacilitatory role of corporate operations inachieving national, regional and localdevelopment priorities.

2.1.2 Do Corporate OperationsContribute to PovertyAlleviation?

To what extent do the normal activities oflarge-scale business operations benefitcommunities in a poor society? What isclear, is that at the local level corporateoperations provide wages and relatedbenefits, infrastructure and services, bringinternational standards in environmental andsocial management, create demand for localindustry, and transfer skills and knowledge;and at the national level, contribute taxes,earn foreign exchange, and improve theoverall investment climate. Thus in a numberof ways corporate operations contribute to arange of public policy objectives of nationalgovernments and international developmentagencies.

http://www.dfid.gov.uk/sid/Indicators/mdgs.htm



Figures 5a, b, c and d12 show the static cashvalue that different types of corporateinvestment add to society in general.Voluntary social investment in localcommunities (at less than 1% of cash value)is contrasted with wages, profit andproduction taxes, dividends, capitalexpenditure (including acquisitions), andcash reinvested. Examples of multi-nationalcorporations are given for the oil and gasindustry (BP), telecommunications(Vodaphone); banking (Barclays); andmanufacturing of consumer goods (Unilever).

What is less clear is whether the most isbeing made of the total value andcompetencies of corporate operations, inparticular regarding pro-poor development,objectives such as food security, long-termemployment for semi and unskilled workers,and affordable access for poor communitiesto transport, health, education, employment,water and sanitation services, land andrenewable natural resources. Drawing onFigure 5, if one looks at the total value of aparticular business unit through this ‘poverty’lens, it can be argued that:

• tax revenues frequently fail to benefitcommunities living in the region ofoperations;

• dividends are paid to shareholders whomay or may not reinvest these gains inthe country or region of operations;

• the skill level required of manyemployees tends to exclude those fromthe poorest, least educated, communities;

• environmental and social managementsystems can be devalued within thebusiness as a compliance requirement (aswell as being founded on the westernnotion of minimising negativeenvironmental impacts rather thanadding social value);

• business-related local infrastructure isoften conspicuously inaccessible to poorcommunities; and

12 All figures are based on Unilever’s Cash Value Addedmodel (Unilever 2000) which identifies five main areasof cash value: voluntary social investment; investmentfor growth, dividends, employees and taxation. In allcases the company’s nearest equivalent to thesecategories is used, with the company’s terminologyretained.

• private sector delivery of services basedon cost-recovery (health care, retail,banking, mass transport etc.) excludethose with low incomes.

The simplified conclusion is that, in the shortto medium term, if society wishescorporations to make a more substantialcontribution to pro-poor development indeveloping countries, then either voluntarycontributions to social projects need toincrease, or the core business activities andoutcomes of the business need to contributemore to the poverty reduction priorities ofsociety.

Figure 5a Distribution of the Total AddedCash Value for Vodafone

Source: Vodafone (2001)

Figure 5b Distribution of Total AddedCash Value - Unilever

Source: Unilever (2000)

Voluntary social investment

<1%

Dividends14%

Tax on profit on ordinary activities

12%

Administration expenses - staff

costs46%

Administration expenses - other costs

28%

Tax (UK)1%

Tax (International)

4%

Voluntary Social Investment

<1%

Capital/financial investment

85%

Employees7%

Dividends3%



Figure 5c Distribution of Total AddedCash Value - Barclays

Source: Barclays (2001)

Figure 5d Distribution of the Total AddedCash Value for BP

Source: BP (2001)

2.1.3 Foreign Direct Investment (FDI)as Proxy for CorporateInvestment

FDI flows are important for economic growthin poor countries, and growth is important forpoverty reduction. However, there is acontinuing debate as to how exactlyinvestment relates to economic growth andpoverty (Rodrik, 1999; Collier and Dollar,1999), and whether the poverty reductionimpact of such investment can be improved.In the poorest countries (such as much ofAfrica) this foreign investment is particularlyrelevant. It can sometimes dominate wholeindustrial sectors and/or geographic regionsand can have both significant positive andnegative consequences for the populationliving in the regions affected by those

business operations in which the capital isinvested.

Investment by foreign multi-nationalcompanies and institutional investors canconstitute a significant portion of overallcorporate investment in the world’s poorestcountries.13 Furthermore, although theoperating company of a major business maynot be the majority equity holder (as is oftenthe case in the minerals and infrastructuresectors, depending on the investment rules inthe host country) it will exert the principalinfluence over how the business is managedand developed, and thus how it interacts withsociety.

It is not in the scope of this Discussion Paperto analyse in detail the relationship betweenequity share and management influence. Themost we can try to do here is identify thosepoor countries in which FDI is significant, forexample by comparing to GDP, and thenmake the assumption that where thisinvestment is directed towards new orexisting corporate operations, the parentcorporation has a significant degree ofmanagement influence over the business.

Although it is recognised that inwardinvestment in many developing countries canbe triggered by the investment decisions ofdomestically owned corporations, data forthis is less easy to come by. It is alsodifficult to distinguish between domesticinvestment that can be considered large-scaleand that associated with small and mediumenterprises.

At this point in time, and with regard to thelimited objectives of this Discussion Paper,we have therefore elected to use FDI as aproxy indicator for gauging the importance oflarge-scale corporate investment in theworld’s poorest countries.

13 To repeat the definition adopted in Part 1: bycorporate investment we mean any major businessoperation over which, due to its part or whole ownershipof that business, a private corporation has a managementinfluence. This would include all four categories ofinvestment cited by Vodaphone: principal subsidiaryundertakings, principal joint ventures, principalassociated undertakings and principal investments; andlikewise include the three categories of corporateinvestment cited by BP: subsidiary, associatedundertakings and joint ventures.

Production taxes6%Voluntary

<1%

Dividends17%

Taxation16%

Employees27%

Capital expenditure

and financial

investment34%

Employees51%

Invested for future growth24%

Taxation12%

Dividend and

financing costs12%

Voluntary community

contributions1%



2.1.4 FDI, Growth and Poverty

The relationship between FDI, growth andpoverty reduction is complex. Many studiesfind significant relationships between FDIand economic growth (Borensztein et al.,1998). However, the link between FDI andpoverty reduction is less clear. Whilst somestudies and methods examine statisticalcorrelations between FDI and povertyvariables, such as wages (te Velde &Morrissey, 2002), very few address the fullscope of developmental impacts, from theeffect of tax revenue distribution to thepotential impact of the business operation onalleviating chronic poverty.

This point is brought home in the latestframework for measuring the positive socialand economic additionality of investmentsprepared by the International FinanceCorporation (IFC) of the World Bank. Theframework recognises that the “approachdoes not address specifically the impact ofthe project on the poor” (IFC 2001).concentrating instead on the value added tosociety through employment opportunities,benefits to customers, benefits tocomplementary producers, opportunities forsuppliers, development of new entrants, otherlocal multiplier effects and provision ofoperation-related infrastructure.

2.1.5 FDI and the Decision to Invest

Another issue prevalent to linking FDI to acountry’s development agenda, is how toincrease the overall volumes of inwardinvestment through securing against non-commercial (i.e. social and political) risk.This, however, is not the topic of the ODPCIprogramme. This programme concentratespredominantly on what happens ‘after’ thedecision is taken to invest and not the factorsinfluencing ‘whether’ to invest in the firstplace.

Interestingly, the growing practices thatcorporate social responsibility (CSR) alsogenerally focuses on corporate behaviour‘after’ the investment decision is made, andnot before. The difference here is that, thetools of CSR are driven for most part by thedesire to manage local risk and mitigate theadverse effects of corporate investments onissues of human rights, employmentstandards and environmental protection. Onlyin the areas of fair trade, supply chain accessand voluntary social programmes does thepractice of CSR address the question of how

corporate operations can optimise their‘positive’ developmental impact on thedevelopment priorities of the host society.

2.2 FDI and ODA - Myths andTruths

2.2.1 FDI in Developing Countries

Developing countries,14 have receivedapproximately a quarter of world FDI flowsover the period 1970-2000. Since FDI flowsvary considerably from one year to the next,focusing on flows in any particular yearconceals important long-run trends. A bettermeasure is therefore the overall ‘stock’ ofinward FDI, which, due to lack of better data,is sometimes measured as the accumulationof flows. Figure 6 shows the regional shareof global FDI stock.

Private (non-portfolio) capital flows aroundthe world have experienced two principalwaves. From 1975 to 1981, flows weredominated by commercial bank lending,involving a high proportion of petro-dollars(ODI, 1997). Between 1981 and 1984 thislending declined as the banks lost confidencein the financial stability of the borrowingcountries, linked in part to the fall in oilprices and related debt crisis. A second waveemerged as markets and financial institutionsintegrated and countries moved towardseconomic liberalisation in trade andinvestment.15 The recent economic slowdownin South East Asia signalled a subsequentdecline in flows, though this time lesspronounced, though with flows to thedeveloping world remaining fairly constant.

14 Defined by UNCTAD as non-OECD countries, butincluding Mexico, Korea and Czechoslovakia . Therationale for this classification is as follows: "There is noestablished convention for the designation of"developed" and "developing" countries or areas in theUnited Nations system. In common practice, Japan inAsia, Canada and the United States in northern America,Australia and New Zealand in Oceania, and Europe areconsidered "developed" regions or areas. Ininternational trade statistics, the Southern AfricanCustoms Union is also treated as a developed region andIsrael as a developed country; countries emerging fromthe former Yugoslavia are treated as developingcountries; and countries of eastern Europe and of theCommonwealth of Independent States (code 172) inEurope are not included under either developed ordeveloping regions" (Source:http://www.un.org/depts/unsd/methods/m49regin.htm)15 Within this ‘portfolio equity’ (i.e. the purchase ofshares) emerged as an important component – 13.5% ofFDI in 1990s compared to 1.2% in the 1980s (ODI,1997).

http://www.un.org/depts/unsd/methods/m49regin.htm



It is well known that cumulatively FDI is thelargest source of external capital flows for alldeveloping countries taken together, i.e.larger than ODA.

Figure 6 Total Global Inward FDI Stock,1999, by Region

Source: UNCTAD (2001)

However, this is too simplistic. In realityFDI flows to developing countries areconcentrated in only a handful of emergingmarkets (China,16 Brazil, Mexico, Singapore,Thailand etc.). For example, in 1999, 11emerging markets (see Figure 7) attracted 80per cent of FDI flows to developingcountries. In contrast, over the same period,Africa, including South Africa, attracted lessthan 5%.

As recently argued: “For the vast majority oflow-income countries, however, FDI isminimal. The structural weakness of theseeconomies, the inefficiencies of their smallmarkets, their skill shortages and weaktechnological capabilities, are allcharacteristics that depress the prospectiveprofitability of investment…Until theseconstraints on possible investment areaddressed, they are likely to continue to relyheavily on receipt of foreign aid” (ODI,1997, p4).

Figure 8 ranks all developing countries interms of GDP per capita – one measure of acountry’s poverty status.17 For each countryinward total stocks of FDI flows are thengiven as a percentage of GDP as at 1999.Table 3 shows those developing countries 16 Although a 1997 World Bank study found pointed to a37% overestimation of total flows to China in 1994, theconclusion that China has been and continues to be thelargest single recipient still holds true.17 GDP per capita at current US$, source: IMF website:http://www.imf.org/external/pubs/ft/weo/2001/03/data/index.htm

with FDI stocks greater than 40% of GDP at1999.

2.2.2 FDI as a Feature of EconomicActivity

Although absolute flows of FDI to thepoorest countries remain low, this does notmean that we should ignore the substantialpositive impact that such investment mighthave on the development priorities of therecipient country or region. FDI stocks maystill represent a significant proportion ofoverall economic activity in a country, orexert political and structural influence overand above its immediate investment value,e.g. through the supply chain, or in terms ofthe overall investment climate.

For example, in Mozambique (one of thepoorest countries in the world), one singleinvestment (the MOZAL aluminium smeltingproject near Maputo) is transformingMozambique, acting both as a ‘honey-pot’for development, attracting new investment,and providing critical foreign exchange.

Likewise, although Tanzania hasaccumulated only a moderate FDI stock of11.2% GDP (at 1999), the country lies in thepoorest quartile of developing countries and,in some regions, is wholly dependent on theextraction industry – an industry increasinglydominated by foreign investors. It wouldtherefore be erroneous to conclude that FDIis not significant to Tanzania, since in someparts of the country these investments are theprincipal catalyst for economic development.

Conversely, developing countries fallingwithin the richest quartile will invariablyhave significant populations living inpoverty. Thus, for example, whilst FDIstocks to Equatorial Guinea are 112% ofGDP (at 1999), the country still suffers frompoverty and high debt. The issue here then ishow to increase the developmental, and inparticular poverty reduction, performance ofthese investments so that benefits are moreequitably distributed.

Other developed countries

(Australia, Israel, Japan, New

Zealand, South Africa)

(US$273bn)5%

Africa (US$89bn)2%

South America (US$520bn)

10%

North America (US$1136bn)

22% Asia (US$1121bn)

22%

Europe (US$2055bn)

39%

http://www.imf.org/external/pubs/ft/weo/2001/03/data/in



Figure 7 Inward FDI Stocks forDeveloping Countries, 1999

Table 3 Developing Countries with the High FDI Stocks Relative to GDP (1999)

FDI Stock as % of GDPat 1999

Africa Latin America andCaribbean

Asia

>40% AngolaEquatorial GuineaLesothoNamibiaNigeriaSwazilandTunisiaZambia

BoliviaChileCosta RicaDominicaGuyanaJamaicaNicaraguaPanamaTunisia

AzerbaijanChinaEstoniaIndonesiaKazakhstanLao PDRMalaysiaPapua New GuineaSingaporeSingaporeVietnam

20 – 40% BeninBotswanaChadCongo RepublicCote d’IvoireGabonMalawiMozambiqueNigerThe GambiaTogo

ArgentinaBelizeBrazilColombiaDominican RepublicEcuadorHondurasParaguayVenezuela

ArmeniaChinaCroatiaCzech RepublicHungryKyrgyz RepublicMaldivesMoldovaTurkmenistan

10 – 20% CameroonCentral African RepublicEgyptEthiopiaGhanaGuinea BissauMaliMoroccoRwandaSenegalTanzaniaUgandaZimbabwe

El SalvadorGuatemalaMexicoPeruUruguay

AlbaniaBulgariaCambodiaJordanLithuaniaMongoliaOmanOmanPakistanPolandQatarRomaniaSaudi ArabiaSlovak RepublicSloveniaSri LankaTajikistanThailandThe PhilippinesUkraineYemen Republic

Source: Figure 8

China44%

Brazil10%

Thailand1%

Colombia1%

rest of Latin Americaand Caribbean

8% all Africa5%

rest of SE Asia (incl.India)

5%

Singapore5%

Mexico5%

Indonesia4%

Argentina4%

Korea, Republic of2%

Malaysia3%

Chile2%

Venezeula1%




Figure 8 Inward FDI stocks as %GDP, 1999, for developing countries ranked byincreasing/decreasing GDP18 per capita19 (part 1 of 3)


18 GDP per capita data at current US$ obtained from IMF website,http://www.imf.org/external/pubs/ft/weo/2001/03/data/index.htm19 Excluding the following countries, for which data is not available: Afghanistan, American Samoa, Andorra, Aruba,Bermuda, Brunei, Cuba, Faeroe Islands, French Polynesia, Guam, Iraq, Korea, Dem. Rep, Liberia, Liechtenstein, MacaoChina, Marshall Islands, Mayotte, Micronesia, Fed. Sts, Monaco, New Caledonia, Northern Mariana Islands, Palau, PuertoRico, San Marino, Somalia, West Bank and Gaza, Yugoslavia, FR (Serbia/Montenegro), Cayman Islands, Virgin Islands(U.S.)

48.1

17.2

6.9

262.7

13.3

15

22.8

9.7

55.6

14.1

16 .1

1.5

30.6

2.5

10 .7

8.2

31.1

28 .8

58.4

15 .8

10

44.5

19 .4

11 .2

12 .5

23.1

13.7

7.2

5.9

22 .4

5.2

23.4

0

0

20.1

14.1

0.2

0

5.1

16

0

0

79.3

18 .6

10.4

24 .5

12.4

0

0 50 100 150 200 250 300

N icaragua

Pakistan

G uinea

Zimbabwe

Lesotho

C omoros

G hana

Benin

Sudan

V ietnam

Mongolia

Yemen, R ep.

Bangladesh

G ambia, T he

Sao T ome and Principe

Mauritania

Kenya

Togo

Moldova

Zambia

U ganda

C entral African R epublic

N igeria

C ambodia

T anzania

R wanda

Kyrgyz R epublic

Mali

Madagascar

C ongo, D em . R ep.

Mozambique

Burkina Faso

C had

N epal

Eritrea

N iger

G uinea-Bissau

Malawi

Tajikis tan

S ierra Leone

Myanmar

Burundi

A lbania

E thiopia

A fghanistan

American Samoa

Andorra

Aruba

Dev

elo

pin

g C

ou

ntr

y (U

NC

TA

D)

% GDP

http://www.imf.org/external/pubs/ft/weo/2001/03/data/index.htm






112

49.4

14.8

15.5

6.1

19.3

16.1

17.7

9.2

2.1

0

0

19.2

17.6

27.8

4.4

45.7

6.1

16

8.3

141

56.9

51.9

6.5

32.5

14.9

93.4

52.8

31.9

26.9

14.2

6.9

30.9

22.5

53.5

0

46.2

10.5

6.8

14

81.4

42.8

5.2

0

0.8

23.1

14.9

26.4

19.9

20.6

0 20 40 60 80 100 120 140 160

Equatorial Guinea

Namibia

El Salvador

Peru

Macedonia, FYR

Jordan

Romania

Guatemala

Tonga

Iran, Islamic Rep.

Algeria

Suriname

Paraguay

Bulgaria

Egypt, Arab Rep.

Cape Verde

Samoa

Russian Federation

Swaziland

Bosnia and Herzegovina

Morocco

Belarus

Vanuatu

Bolivia

Kazakhstan

Syrian Arab Republic

Ecuador

Philippines

Guyana

Solomon Islands

Turkmenistan

Congo, Rep.

Sri Lanka

Djibouti

China

Honduras

Papua New Guinea

Uzbekistan

Indonesia

Cote d'Ivoire

Ukraine

Kiribati

Cameroon

Azerbaijan

Lao PDR

Haiti

Georgia

Bhutan

Senegal

Armenia

Dev

elo

pin

g C

ou

ntr

y (U

NC

TA

D)

%GDP







16.9

97.5

255.5

5.3

33.3

20.1

1.7

231.7

13

92.1

100

13.2

65.4

7.9

22.1

95.5

20

122.2

10.5

15.7

0

33

90.9

5.5

39.9

16.4

55.2

20.9

43.3

20.2

17.2

119.4

106.6

35.1

9.6

14.6

65.3

108

47.9

69.9

23.1

45.4

21.6

50.2

157.9

36.2

19.7

4.4

26.9

57

24.9

21.9

0 50 100 150 200 250 300

Qatar

Singapore

Hong Kong, China

United Arab Emirates

Bahamas, The

Cyprus

Kuwait

Netherlands Antilles

Slovenia

Antigua and Barbuda

Bahrain

Barbados

Malta

Korea, Rep.

Argentina

Seychelles

Saudi Arabia

St. Kitts and Nevis

Uruguay

Oman

Libya

Czech Republic

Trinidad and Tobago

Lebanon

Hungary

Mexico

Chile

Venezuela, RB

Costa Rica

Croatia

Poland

St. Lucia

Grenada

Gabon

Mauritius

Slovak Republic

Malaysia

Dominica

Estonia

Panama

Botswana

Jamaica

Brazil

Fiji

St. Vincent and the Grenadines

Belize

Lithuania

Turkey

Latvia

Tunisia

Dominican Republic

Colombia

Dev

elo

pin

g C

ou

ntr

y (U

NC

TA

D)

% of GDP




This said, it is possible to broadly indicate (asin Table 3) those developing countries whereits development priorities are, or could be,substantially influenced by FDI. Forexample, as at 1999, of the poorest quartile ofdeveloping countries (ranked by GDP/capita)the following countries have stocks of FDIrunning at over 40% of GDP: Zambia;Vietnam, Lesotho and Angola.

2.2.3 Contributing to DevelopmentPriorities: FDI vs ODA

Much is made of how FDI currently “dwarfs”the aid budgets of foreign governments andmulti-lateral organisations (DIFD, 2002). Aswe have just seen, in practice 80% of FDIflows to developing countries areconcentrated in only eleven countries.

Furthermore, the current stream of benefitscontributed to society by those businessoperations financed through FDI, namelytaxes, dividends, wages and capitalinvestment (see Figure 5) are different to theoutcomes achieved through the variousinstruments that make ODA24 such as foodsecurity, public sector governance and accessto essential infrastructure.

Table 4 identifies a generic inventory ofdevelopment priorities common to many ofthe world’s poorest countries.25 Thesepriorities are the ‘intended’ outcomes ofODA. For the most part, however, these arenot the intended outcomes of FDI. Forforeign companies, and their institutional anddomestic government investors (i.e. thosesecuring a management interest in corporateoperations) and for sectors other than publicutilities, many of the developmentalobjectives of ODA lie outside the originalbusiness base-case promoted by the projectsponsor.

Table 5 provides a comparison of FDI againstODA in relation to how each contributes tothese different development objectives. The

24 Official development assistance (ODA) can be definedas support by the executive agencies of foreigngovernments to developing countries (Part I of the DACList of recipient countries) or multilateral institutions,that has as its main objective the economic developmentand welfare of people in developing countries and isconcessional in character and conveys a grant element ofat least 25%. (source - www.dfid.gov.uk/sid)25 Taken from the categories commonly applied to thepreparation of PRSPs for highly indebted poor countries(HIPC).

relative contribution of eight different ODAinstruments (Foster and Leavy, 2001) aresummarised, and placed alongside the currentand potential contributions to be made by thekey resources and capabilities of thecorporate sector if deployed to specificallyaddress development priorities. The eightODA instruments are as follows:

• Balance of Payments Support – usuallyprovided by World Bank/IMF, providesfinance in support of structural policyadjustment/reform for correcting debtunsustainability, trade imbalances andfor exchange rate over-valuation, paidinto a Central Bank and has the effect ofmaking foreign exchange available.

• General Budget Support – directfinancial support to the Governmentdomestic budget aimed at increasingavailable domestic currency (byreplacing need to use domestic currencyto support foreign exchange rate) for usein either raising spending, reducingborrowing or reducing taxes. Thebalance between these choices is usuallydetermined by IMF/World Bank, withmain focus of conditionality, on anagenda of policy measures and budgetpriorities agreed to by Government.

• Debt Relief – financial support aimed atreducing large debt stocks. To ensuredebt relief releases Governmentresources for poverty reduction, debtrelief to highly indebted poor countries(HIPC) is conditional on the preparationof poverty reduction strategy papers(PRSPs) which earmark expendituretowards specific public povertyreduction policies. PRSPs have alsobecome the basis for co-ordinating andleveraging much multi- and bi-lateralaid, further ensuring that resourcesreleased through HIPC debt relief arechannelled to poverty reduction.



Table 4 Generalised Inventory of the Development Priorities of ODA in Poor Countries

Development Priorities

National Security and Good (public sector) GovernancePromote an efficient, responsive and representative democratic system at the national level: President, Executive, Parliament andpolitical partiesEnsure a non-partisan, efficient and functional Electoral Commission, Human Rights Commission, Anti-Corruption Commission etc.Promote the efficiency and independence of the judiciary (Supreme, Appeal and High Courts)Restructure and retrain police, armed forces and prison officersExternal PoliciesBuild foreign exchange reserves and maintain flexible exchange marketReduce external debt burden and improve credit worthinessLiberalise trade regimeFiscal PolicyImprove fiscal/budgetary managementStrengthen tax administration and expand tax baseImprove non-tax revenue performance (eg corporate tax and tax collection)Reallocate public expenditure to priority sectors, eg welfareBuild capacity for greater efficiency in public/civil serviceImprove efficiency and attract investment into state owned enterprises/utilitiesMonetary and Financial Sector PoliciesReduce reliance on reserves for domestic credit control, promote more active use of open marketIncrease variety of financial investment and savings instrumentsImprove scrutiny of financial systemStrengthen support of Central Bank to, and overall management of, commercial banksSectoral and Related PoliciesImprove transparency, scrutiny and distribution of revenues from high-yielding investments, eg oil, gas, mining, privatised utilitiesDevelop efficient markets for land under lease and establish land management information systemReduce government intervention in grain imports/exports and agricultural creditFacilitate infrastructure development for agricultural sector, eg feeder roadsPromote investment in agriculture, manufacturing, tourism etc, including infrastructure.Develop an efficient transport network, including capacity building and maintenanceFacilitate private sector involvement in electricity generation and transmissionIncrease coverage and improve efficiency of health sector service and delivery, including: rural and urban potable water supply andsanitation, supply and distribution of affordable drugs, improved health care management, re-training for health care personnel,rehabilitation of regional health clinics, disease prevention education (HIV/AIDS, STDs, reproductive health) etc.Improve access to, and quality of, education system, including: free primary education, improved school facilities and equipment,improved transport service to schoolsImprove vocational training and employment opportunities for youthPromote sound renewable natural resource management and environmental protectionPolitical DecentralisationPromote representative and responsive political parties at the district levelPromote ‘inclusive’ preparation of regional development plansPromote community policing, and strengthen the local (and where appropriate) traditional courtsDecentralise agricultural research and extension services to the district levelPromote revenue mobilisation at the district level, eg vehicle tolls, road tolls, vehicle license fees etcPromote financial decentralisation and strengthen financial management systems at central and district levelWhere appropriate support ‘traditional’ institutions and systems, eg Councils of ChiefsResolve regional and local economic grievances and related violencePrivate Sector DevelopmentBalance the stimulation of direct investment (foreign and domestic) with the level of tax receiptsMaximise employment opportunities and manage retrenchmentEncourage presence of financial intermediaries and risk guarantee instruments for SMEsStimulate market opportunities for domestic SMEs, eg business linkages to large scale companiesReduce legal and administrative bottlenecks to business developmentImprove access to basic business management and vocational skills for SMEs and micro-enterprisesImprove access to micro-financing for micro-enterprisesEncourage links between formal and informal economic sectorsHousehold Livelihood SecurityProvide affordable access for poor communities (rural and urban) to essential infrastructure (power, water, health, education andtransportation)Refine and diversify on-going micro projects to address needs of poor households and vulnerable groupsImprove food security, including: rural and peri-urban fuelwood, market facilities, increased food output, crop diversification, livestockproduction, supply of agricultural inputs, access to credit, land and technical adviceImprove land and water-way access to market centresCo-ordinate CBO and NGO delivery of community servicesIntegrate urban street children into mainstream schoolingHumanitarian Assistance and Conflict ReconstructionDisaster and refugee relief (food, shelter, water, medicine, transport etc.)Facilitate the return of refugees and IDPsSupport rehabilitation of community facilitiesRehabilitate and constrict affordable sheltersPrevent violent conflict, eg risk assessment, stakeholder dialogueResolve ‘open’ violent conflict



Tab

le 5

Con

trib

utio

ns to

Dev

elop

men

t Pri

oriti

es fr

om C

orpo

rate

Ope

ratio

ns a

nd O

DA

Inst

rum

ents

Res

ourc

es a

nd C

apab

ilitie

s of

Cor

pora

te O

pera

tions

(cur

rent

- C

; pot

entia

l – P

)

Inst

rum

ents

of O

DA

(per

form

ance

- ●

hig

h; ●

mod

erat

e; ❍

low

)

Dev

elop

men

t Prio

ritie

s

Tax payments

Direct Employment/supply chain


Project and contract management

Research and development

Technical skills – engineering, finance

Marketing/market research/distribution

Infrastructure (power, water, health etc

Human resources development

Borrowing capacity

Balance of Payments Support

General Budget Support

HIPC Debt Relief

Sector Budget Support

Sector-Earmarked Support

Project Aid through Government

Project Aid through ODA agencies

Project Aid through NGOs and private

Nat

iona

l Sec

urity

and

Goo

d (p

ublic

sec

tor)

Gov

erna

nce

Pro

mot

e an

effi

cien

t, re

spon

sive

and

repr

esen

tativ

e de

moc

ratic

sys

tem

at t

he n

atio

nal l

evel

: Pre

side

nt,

Exe

cutiv

e, P

arlia

men

t and

pol

itica

l par

ties

●❍

❍

Ens

ure

a no

n-pa

rtisa

n, e

ffici

ent a

nd fu

nctio

nal E

lect

oral

Com

mis

sion

, Hum

an R

ight

s C

omm

issi

on, A

nti-

Cor

rupt

ion

Com

mis

sion

etc

.●

●●

Pro

mot

e th

e ef

ficie

ncy

and

inde

pend

ence

of t

he ju

dici

ary

(Sup

rem

e, A

ppea

l and

Hig

h C

ourts

)●

●●

●❍

Res

truct

ure

and

retra

in p

olic

e, a

rmed

forc

es a

nd p

rison

offi

cers

P●

●●

●❍

Exte

rnal

Pol

icie

sB

uild

fore

ign

exch

ange

rese

rves

and

mai

ntai

n fle

xibl

e ex

chan

ge m

arke

tC

●●

Red

uce

exte

rnal

deb

t bur

den

and

impr

ove

cred

it w

orth

ines

sC

●●

●Li

bera

lise

trade

regi

me

C●

●Fi

scal

Pol

icy

Impr

ove

fisca

l/bud

geta

ry m

anag

emen

tP

●●

●❍

Stre

ngth

en ta

x ad

min

istra

tion

and

expa

nd ta

x ba

seC

●●

●❍

Impr

ove

non-

tax

reve

nue

perfo

rman

ce (e

g co

rpor

ate

tax

and

tax

colle

ctio

n)P

P●

●❍

Rea

lloca

te p

ublic

exp

endi

ture

to p

riorit

y se

ctor

s, e

g w

elfa

re, i

nfra

stru

ctur

eP

●●

●B

uild

cap

acity

for g

reat

er e

ffici

ency

in p

ublic

/civ

il se

rvic

eP

P●

●●

❍

Impr

ove

effic

ienc

y (a

nd a

ttrac

t priv

ate

inve

stm

ent i

nto)

sta

te o

wne

d en

terp

rises

/util

ities

CP

●●

●●

●

Mon

etar

y an

d Fi

nanc

ial S

ecto

r Pol

icie

sR

educ

e re

lianc

e on

rese

rves

for d

omes

tic c

redi

t con

trol,

prom

ote

mor

e ac

tive

use

of o

pen

mar

ket

●●

❍

Incr

ease

var

iety

of f

inan

cial

inve

stm

ent a

nd s

avin

gs in

stru

men

ts●

●❍

Impr

ove

scru

tiny

of fi

nanc

ial s

yste

m●

●●

❍

Stre

ngth

en s

uppo

rt of

Cen

tral B

ank

to, a

nd o

vera

ll m

anag

emen

t of,

com

mer

cial

ban

ks●

Sect

oral

and

Rel

ated

Pol

icie

sIm

prov

e tra

nspa

renc

y, s

crut

iny

and

dist

ribut

ion

of re

venu

es fr

om h

igh-

yiel

ding

inve

stm

ents

, eg

oil,

gas,

min

ing,

priv

atis

ed u

tiliti

esP

❍●

❍❍

Dev

elop

effi

cien

t mar

kets

for l

and

unde

r lea

se a

nd e

stab

lish

land

man

agem

ent i

nfor

mat

ion

syst

emP

P❍

●●

❍❍

Red

uce

gove

rnm

ent i

nter

vent

ion

in g

rain

impo

rts/e

xpor

ts a

nd a

gric

ultu

ral c

redi

t❍

●●

❍

Faci

litat

e in

frast

ruct

ure

deve

lopm

ent f

or a

gric

ultu

ral s

ecto

r, eg

feed

er ro

ads

PP

P❍

●●

●❍

Pro

mot

e in

vest

men

t in

agric

ultu

re, m

anuf

actu

ring,

tour

ism

etc

, inc

ludi

ng in

frast

ruct

ure.

PP

PP

P❍

●●

●❍



Res

ourc

es a

nd C

apab

ilitie

s of

Cor

pora

te O

pera

tions

(cur

rent

- C

; pot

entia

l – P

)

Inst

rum

ents

of O

DA

(per

form

ance

- ●

hig

h; ●

mod

erat

e; ❍

low

)

Dev

elop

men

t Prio

ritie

s

Tax payments









Borrowing capacity



HIPC Debt Relief






Dev

elop

an

effic

ient

tran

spor

t net

wor

k, in

clud

ing

capa

city

bui

ldin

g an

d m

aint

enan

ceP

PP

❍●

●●

❍

Faci

litat

e pr

ivat

e se

ctor

invo

lvem

ent i

n el

ectri

city

gen

erat

ion

and

trans

mis

sion

PP

❍●

●●

❍

Incr

ease

cov

erag

e an

d im

prov

e ef

ficie

ncy

of h

ealth

sec

tor s

ervi

ce a

nd d

eliv

ery,

incl

udin

g: ru

ral a

ndur

ban

pota

ble

wat

er s

uppl

y an

d sa

nita

tion,

sup

ply

and

dist

ribut

ion

of a

fford

able

dru

gs, i

mpr

oved

hea

lthca

re m

anag

emen

t, re

-trai

ning

for h

ealth

car

e pe

rson

nel,

reha

bilit

atio

n of

regi

onal

hea

lth c

linic

s, d

isea

sepr

even

tion

educ

atio

n (H

IV/A

IDS,

STD

s, re

prod

uctiv

e he

alth

) etc

.

PP

PP

❍●

●●

●❍

Impr

ove

acce

ss to

, and

qua

lity

of, e

duca

tion

syst

em, i

nclu

ding

: fre

e pr

imar

y ed

ucat

ion,

impr

oved

sch

ool

faci

litie

s an

d eq

uipm

ent,

impr

oved

tran

spor

t ser

vice

to s

choo

lsP

P❍

●●

●●

❍

Impr

ove

voca

tiona

l tra

inin

g an

d em

ploy

men

t opp

ortu

nitie

s fo

r you

thP

PP

❍●

●●

❍❍

❍

Pro

mot

e so

und

rene

wab

le n

atur

al re

sour

ce m

anag

emen

t and

env

ironm

enta

l pro

tect

ion

PP

❍●

●●

●❍

❍

Polit

ical

Dec

entr

alis

atio

nP

rom

ote

repr

esen

tativ

e an

d re

spon

sive

pol

itica

l par

ties

at th

e di

stric

t lev

el●

❍❍

●

Pro

mot

e ‘in

clus

ive’

pre

para

tion

of re

gion

al d

evel

opm

ent p

lans

PP

●❍

●❍

Pro

mot

e co

mm

unity

pol

icin

g, a

nd s

treng

then

the

loca

l (an

d w

here

app

ropr

iate

) tra

ditio

nal c

ourts

●●

●❍

●❍

Dec

entra

lise

agric

ultu

ral r

esea

rch

and

exte

nsio

n se

rvic

es to

the

dist

rict l

evel

PP

●●

●❍

●❍

Pro

mot

e re

venu

e m

obilis

atio

n at

the

dist

rict l

evel

, eg

vehi

cle

tolls

, roa

d to

lls, v

ehic

le li

cens

e fe

es e

tcP

●●

●●

❍

Pro

mot

e fin

anci

al d

ecen

tralis

atio

n an

d st

reng

then

the

finan

cial

man

agem

ent s

yste

ms

of s

ecto

ral c

entra

lm

inis

tries

and

dis

trict

leve

lP

●●

●●

❍

Whe

re a

ppro

pria

te s

uppo

rt ‘tr

aditi

onal

’ ins

titut

ions

and

sys

tem

s, e

g C

ounc

ils o

f Chi

efs

C●

●●

●●

●

Res

olve

regi

onal

and

loca

l eco

nom

ic g

rieva

nces

and

rela

ted

viol

ence

P●

❍●

●Pr

ivat

e Se

ctor

Dev

elop

men

tB

alan

ce th

e st

imul

atio

n of

dire

ct in

vest

men

t (fo

reig

n an

d do

mes

tic) w

ith th

e le

vel o

f tax

rece

ipts

P●

●❍

Max

imis

e em

ploy

men

t opp

ortu

nitie

s an

d m

anag

e re

trenc

hmen

tC

CP

P❍

●❍

●❍

❍

Enc

oura

ge p

rese

nce

of fi

nanc

ial i

nter

med

iarie

s an

d ris

k gu

aran

tee

inst

rum

ents

for S

ME

sP

PP

●●

●●

Stim

ulat

e m

arke

t opp

ortu

nitie

s fo

r dom

estic

SM

Es, e

g bu

sine

ss li

nkag

es to

larg

e sc

ale

com

pani

esC

CP

PP

PP

❍●

●●

❍

Red

uce

lega

l and

adm

inis

trativ

e bo

ttlen

ecks

to b

usin

ess

deve

lopm

ent

●❍

●●

❍

Impr

ove

acce

ss to

bas

ic b

usin

ess

man

agem

ent a

nd v

ocat

iona

l ski

lls fo

r SM

Es a

nd m

icro

-ent

erpr

ises

CC

PP

P●

❍●

❍●

●

Impr

ove

acce

ss to

mic

ro-fi

nanc

ing

for m

icro

-ent

erpr

ises

CP

❍❍

●●

●H

ouse

hold

Liv

elih

ood

Secu

rity

Pro

vide

affo

rdab

le a

cces

s fo

r poo

r com

mun

ities

(rur

al a

nd u

rban

) to

esse

ntia

l inf

rast

ruct

ure

(pow

er,

wat

er, h

ealth

, edu

catio

n an

d tra

nspo

rtatio

n)C

PP

❍❍

●❍

●●

dive

rsify

on-

goin

g m

icro

pro

ject

s to

add

ress

nee

ds o

f poo

r hou

seho

lds

and

vuln

erab

le g

roup

sC

P❍

❍❍

●●



Res

ourc

es a

nd C

apab

ilitie

s of

Cor

pora

te O

pera

tions

(cur

rent

- C

; pot

entia

l – P

)

Inst

rum

ents

of O

DA

(per

form

ance

- ●

hig

h; ●

mod

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• Sector Budget Support – financialsupport provided in the context of agreedGovernment policy and expenditureplans for a whole sector, eg health,education. The more recent Sector-WideApproach (SWAp) is similar but aimedat co-ordinating all Government anddonor assistance across a sector (‘basketfunding’). SWAp support generallyincludes budget assistance, technicalassistance and project (grant) aid.

• Sector-Earmarked Support – similar tobudget support but limits aid to somespecific expenditure category within theoverall sector, e.g. primary health carespending at district level. Again, thissupport can include budget assistance,technical assistance and project aid.

• Project Aid through Government –specific earmarking of financial aid todiscrete sets of activities with coherentobjectives, outputs and inputs, withresources disbursed through Governmentsystems (common to World Bankprojects), often includes a combinationof technical assistance, human resourcedevelopment and small grants.

• Project Aid through ODA Agencies –many bi-lateral ODA agencies prefer todisburse resources through their ownmanagement and accounting procedures.The problem is that aid can act as an‘island of excellence’ lacking integrationwith Government structures and sectorbudgets. Contributions are mainlytechnical assistance, human resourcedevelopment and small grants.

• Project Aid through NGOs and thePrivate Sector – in weak policyenvironments and regions, and in casesof market failure or breakdown inresource distribution, NGOs and privatemicro-enterprises may act as serviceproviders to poor and vulnerable groups.However these activities tend not tointegrate with the expenditure plans ofpublic sector organisations.

The central hypothesis of the ODPCIprogramme is that there is merit in exploringthe business-case for certain of the coreresources and capabilities of corporateoperations to be deployed to help achieve thedevelopmental priorities of the host society.Looking across a range of industrial sectors,these resources and capabilities include:

• tax payments and the associated taxdistribution regime;

• direct employment and supply chainopportunities;

• voluntary social investment budgets andcapabilities;

• skills in project and contractmanagement;

• research and development capacity;

• technical skills, e.g. engineering, impactassessment;

• marketing, market research anddistribution networks;

• infrastructure (power generation anddistribution, water supply and sanitation,housing, transportation, health services.telecommunications etc.);

• human resource development (vocationaltraining and employee education); and

• capacity to borrow finance and guaranteeloans.

In Table 5, FDI is replaced by the termcorporate operation (taken to mean theoperational activities of investments indeveloping countries contributed to by multi-national or domestic corporations and with asignificant management influence). The tableidentifies the current and potential utilisationof the resources and capabilities of theseoperations in meeting the developmentobjectives of society.

The table is an initial indication of the entrypoints for managers of a corporate operationto approach international developmentagencies to explore whether some form ofpartnership arrangement or collaborationmight be possible to contribute socialbenefits. A hypothetical illustration of thisprocess is given in Box 6.

Table 5 is in early stages of development andrequires substantial refinement. However, itdoes show a potential pathway for managersof corporate operations and officialdevelopment agencies to explore how theymight collaborate to achieve developmentobjectives.



Box 6 Linking The Competencies ofCorporate Operations to theInstruments of ODA - a hypotheticalillustration

A process of PRSP formulation for HIPCrelated debt relief identified the importanceof developing feeder roads to facilitateagricultural development and improve foodsecurity. This is accompanied by anindication that two bi-lateral internationaldevelopment assistance agencies areintending to financially support the policythrough targeted sector-support directed tovarious district public works departments.

A private pipeline operator opens adialogue with these agencies, noting thatits own operations will involve theconstruction of road infrastructure acrossa number of districts. The company furthernotes that it has expertise in coordinatingprocesses of competitive tendering, and incontract design and project management,and that these competencies might be ableto be made available to help in developinga national programme of training andmentoring for civil service engineers.

There is, of course, also no reason whysuch a dialogue could not be initiated bythe development agency rather than thecompany, recognising, perhaps that theroad infrastructure about to be developedin a particular region might form a ‘bestpractice’ model for a national levelprogramme of feeder road development.

2.2.4 Limitations

There are a number of limitations in trying tolink the business competencies of corporateoperations to ODA instruments. In summarythese include:

• the shift in multi- and bi-lateraldevelopment agency support towardsnon-earmarked budgetary support (atnational or sector level), which:

affords little scope for project-leveldevelopment activities, the type thatmight be most readily integratedwith geographically-specificcorporate operations; and

involves only periodic (three or fiveyears) and closed negotiations overthe policy reform and expenditureagreements that will accompany thebudget support, thus constrainingopportunities to collaborate with thecorporate sector.

• the inherently political nature of much ofODA budgetary support.

More suited to a linkage with the businesscompetencies of corporate operations arethose ODA flows earmarked for eitherspecific activities within a particular sector orgeographically-specific developmentprojects. This would include debt reliefsupport tied to PRSPs, sector-earmarkedsupport, most project aid (be that technicalassistance or grants, and delivered viagovernment or through parallel systems),humanitarian assistance, and in the case of bi-lateral development agencies, financialassistance provided as part of wider‘programmes’, such as to the World Bank,Regional Development Banks, the GEF, EU,FAO and UNESCO.

In reaching conclusions on the potentiallinkage of corporate competencies withODA, some quantitative breakdown of ODAis needed. As an illustration, and drawing onthe above distinctions of different ODAinstruments, Table 7 shows the volumes andtrends of ODA provided by the UKDepartment for International Development(including programme support).

The key question is whether, for any givendevelopment priority, there is a dual‘business-case’ and ‘development-case’ forgreater use to be made of corporateinvestments in contributing to the realisationof these priorities, beyond the conventionaltax, wages and social investment. In thecontext of DFID’s ODA, it would seem thatin the medium term (2-10 years), whilst non-earmarked budget and sector support ispossibly a growing feature, it is unlikely toaccount for more than 5 to 10% of totalODA.26

Even if one assumes that a proportion ofprogramme aid to multi-lateral institutionssuch as the World Bank will be used for non-earmarked budgetary and sector support, theproportion of total ODA in the ‘budget’category is likely to remain between 10 and15%.27

26 It is not clear from the available data what amounts ofODA support in the category defined by DFID as‘Project and Sector Aid’ includes non-earmarkedbudgetary or SWAp support. A very large proportion ofthis category is likely to be ‘earmarked’, either as projectaid or as targeted sector aid (E.Robbins, pers comm.DFID/SIDS).27 E.Robbins, pers comm. DFID/SIDS, July 2002.



0

100

200

300

400

500

600

700

1996/97 1997/98 1998/99 1999/2000 2000/2001

Financial Year

OD

A £

mill

ions

Budgetary Support

Aid to Multi-lateral Programmes (exclu budgetarysupport)

Debt relief

Project or Sector Support

Project Aid - Technical Assistance/Co-operation

Project Aid - Grants and Aid Inkind

Humanitarian Assistance

Table 6 Trends in DFID ODA

The recent commitment by the BritishGovernment to increase the overall resourcesof DFID means that, in the medium term,earmarked sector and project support, debtrelief (tied to PRSPs), technical assistance,grants and in-kind resourcing are all likely tocontinue at present or higher levels.Increases in the available resources of otherbi-lateral development organisations havealso been recently pledged.28

Thus, for the time being at least, the vastmajority of ODA to developing countrieswould seem to offer potential for exploringsynergies with the resources and capabilitiesof the corporate sector in the pursuit of thedevelopment priorities of the world’s poorestsocieties.

2.2.5 Factors Constraining theDevelopment Performance ofFDI

A number of factors currently conspire toconstrain the development performance ofcorporate investments in poor countries.These include:

• minimum required returns for foreigninvestors, which in some sectors isapproaching 25% per year, makinginvestment in agriculture for example (akey sector for poverty reduction)financially prohibitive. The recent

28 The G8 meeting in June 2002 saw a $6 billionincrease in aid, trade and debt relief for Africa, as well asa politically significant 50% increase in the US aidbudget (source: Times, July 10th 2002, p16)

decision of the CommonwealthDevelopment Corporation (CDC CapitalPartners) to begin to offload itsagricultural assets is an example;29

• political pressures on operators from hostcountry governments to generatecontinuous corporate and profit taxcontributions that seldom return to theregion of operations;

• operating company reinvesting profitsfor expansion activities that continue tohave little relevance to poorcommunities;

• local income earning opportunities (andsome labour practices) that tend toexclude access to employment foruneducated communities;

• products and services affordable only bythe few, e.g. bank loans, white goods,utility services (water, transport,electricity, secondary schooling, healthcare etc.), crop inputs etc;

• value chains (supplies and distribution)inaccessible to domestic small andmedium scale enterprises (SMEs); and

• the poor level of sustainability ofcompany-led voluntary communitydevelopment.30

29 “...we need to achieve higher financial returnsdemanded by the private markets…Our strategy is todispose of the investments in [our]..historical debtportfolio...which has had significant developmentalvalue, but is unlikely to meet the financial hurdles thatCDC now requires”. CDC Chairman’s Statement, 2000.30 Company-led voluntary community programmes,though having an immediate positive impacts on poorcommunities, tend to benefit those populations most



Aside from a reduction in rates of investmentreturn, the ODPCI programme is aimed atovercoming each the above constraints. Thecentral hypothesis of the programme is that amanagement tool, embedded in an operatingcompany, and which systematically mapsbusiness competencies onto developmentpriorities in the context of partnerships withthe executing agencies of ODA, hostgovernments and civil society organisations,can improve the overall developmentperformance of corporate investments.

Without such partners willing to share costsand pool competencies and skills, thebusiness-case for enhanced corporatedevelopment performance in the world’spoorest countries is likely to be weaker. Wetherefore need to identify those low incomecountries where the volumes of FDI coincidebroadly with flows of ODA, and recognisethat these ODA flows (whether earmarked assector support, conditional debt relief orproject aid) may, for the time being at least,be the deciding factor in encouragingcorporations to consider contributing theirbusiness competencies to more poverty-focused priorities.

2.2.6 Ratios of FDI to ODA

Figure 9 compares the average flows of FDIto ODA over the four-year period 1996 to1999, as a percentage of GDP. In thefollowing countries, volumes of FDI coincidebroadly with flows of ODA:

Africa: Cote d'Ivoire, Zimbabwe, Sudan

Asia: Armenia, Cambodia, Georgia,Moldova, Pakistan, Sri Lanka, India,

adversely affected by business operations (e.g. from landacquisition and loss of other assets). They are rarelydirected at the region of operations as a whole. Further,these activities are often viewed by communities, not as‘additional’ benefits, but as legitimate compensation forloss of livelihoods and security. In other words, theperceived net development value of the investmentcombined with these programmes is often perceived as‘zero’. Furthermore, a number of authors are raisingquestions over the long-term sustainability of company-led community development programmes (Warner,2000b; CDC, 2002). The volatility of global markets(such as variable commodity prices); local commercialuncertainties (such as the reliability of supply chains,distribution networks; political risk; and the limitedduration of investments in certain sectors (such as theextraction industries) mean that companies cannot assurethe continuity of local presence needed to build thecapacity of community and local government institutionsto manage community programmes in the long-term.

Indonesia, Philippines, Ukraine,Uzbekistan

In general, any country where FDI and ODAare both significant in relation to overalleconomic activity offers the opportunity toexplore partnership arrangements betweencorporate operations and developmentassistance agencies. Table 8 shows the ratioof FDI for ODA for the 70 countries rankedas poorest by GDP/capita. Highlighted arethose countries where the stock of FDI isgreater than 20% of GDP (as at 1999). Thus,the following countries both have substantialFDI stocks, as well as ratios of FDI:ODA(assumed to be ratios less than 5:1) that mightsupport a collaborative approach toimproving the development performance ofcorporate operations:

Africa: Angola, Chad, Cote d’Ivoire,CDR, The Gambia, Lesotho, Malawi,Mozambique, Niger, Nigeria and Zambia

Latin America: Ecuador, Guyana,Honduras and Nicaragua

Asia: Armenia, Indonesia, KyrgyzRepublic, Moldova, Vietnam

A second conclusion drawn from Table 7 isthat, on average, for the poorest quartile ofdeveloping countries, ODA exceeds FDI byaround 2:1. This average ratio would begreater were it not for a handful of thepoorest quartile countries with a highFDI:ODA ratio: Vietnam (3:1), Angola (3:1),Lesotho (4:1), Ecuador (4:1), andTurkmenistan, Myanmar, Azerbaijan, Nigeriaand China (all > 5:1). Of these both Myanmarand Nigeria were under UN sanctions thatlimited official development assistance formuch of the period of the data set, i.e. 1996to 1999. Thus, for example, the FDI:ODAratio today for Nigeria is likely to be lower.This leaves Vietnam, Angola, Lesotho,Ecuador, Turkmenistan, Azerbaijan andChina as the only seven countries, from theworld’s poorest 70, where it is justifiable totalk of annual FDI flows “dwarfing” those ofODA.



Table 7 Ratio of FDI:ODA, for the 70 Poorest Countries31

FDI < ODA FDI > ODA> 1:10 1:10–1:5 1:5–1:2 1:2–1:1 1:1–2:1 2:1–3:1 3:1–5:1 > 5:1

Burkina Faso Albania Ethiopia Armenia India Angola Ecuador Azerbaijan

Burundi Bangladesh Gambia, The Cambodia Indonesia Vietnam Lesotho China

Cameroon Benin Guyana Cote d'Ivoire Philippines Myanmar

Central AfricanRepublic

Ghana Honduras Georgia Sudan Nigeria32

Chad Malawi KyrgyzRepublic

Moldova Ukraine Turkmenistan

Comoros Mali Lao PDR Pakistan Uzbekistan

Congo, Dem.Rep.

Senegal Mozambique Sri Lanka

Congo, Rep. Tajikistan Nicaragua Zimbabwe

Djibouti Tanzania Papua NewGuinea

Guinea Solomon Islands

Guinea-Bissau Togo

Haiti Uganda

Kenya Zambia

Madagascar

Mauritania

Mongolia

Nepal

Niger

Rwanda

Sierra Leone

31 The poorest 70 classified by IMF ranking. This excludes the following countries, for which data is not available:Afghanistan, American Samoa, Andorra, Aruba, Bermuda, Brunei, Bhutan, Cuba, Eritrea, Faeroe Islands, FrenchPolynesia, Guam, Iraq, Korea, Dem. Rep, Liberia, Liechtenstein, Macao China, Marshall Islands, Mayotte, Micronesia,Fed. Sts, Monaco, New Caledonia, Northern Mariana Islands, Palau, Puerto Rico, San Marino, Somalia, West Bank andGaza, Yugoslavia, FR (Serbia/Montenegro), Cayman Islands, Virgin Island, Yemen (U.S.)32 Amended to take account of recent rise in ODA.



Figure 9 Average Annual Flows of ODA and FDI as % Gross Domestic Product forDeveloping Countries33 ranked by GDP per capita, 34 1996-99 (part 1 of 3)

1 1 .0

1 1 .6

5 .1

0 .4

3 0 .8

8 .7

4 .1

7 .9

1 5 .5

8 .4

1 0 .3

4 .2

2 1 .8

5 .4

9 .0

7 7 .3

2 1 .6

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3 .6

1 6 .1

1 0 .0

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1 9 .6

1 4 .6

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0 .2

4 .2

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5 .1

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0 .9

2 .3

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0 .5

0 .2

2 .5

4 .3

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2 .7

1 .3

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0 .7

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2 .3

1 .8

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3 .3

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0 .7

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0 .0

1 .9

1 .9

0 .3

0 .3

0 .0 2 0 .0 4 0 .0 6 0 .0 8 0 .0 1 0 0 .0

S e n e g a l U S $ m 5 0 9 U S $ m 9 5

A rm e n ia U S $ m 2 0 3 U S $ m 1 0 8

A n g o la U S $ m 3 8 8 U S $ m 1 0 4 5

In d ia U S $ m 1 6 5 4 U S $ m 2 7 4 3

N ic a ra g u a U S $ m 6 4 7 U S $ m 1 8 9

P a k is ta n U S $ m 8 1 5 U S $ m 6 6 7

G u in e a U S $ m 3 1 9 U S $ m 3 1

Z im b a b w e U S $ m 3 0 8 U S $ m 1 8 0

L e s o th o U S $ m 7 3 U S $ m 2 3 8

C o m o ro s U S $ m 3 1 U S $ m 2

G h a n a U S $ m 6 1 2 U S $ m 8 0

B e n in U S $ m 2 3 3 U S $ m 4 1

S u d a n U S $ m 2 0 2 U S $ m 2 1 0

V ie tn a m U S $ m 1 1 2 2 U S $ m 2 3 9 7

M o n g o lia U S $ m 2 1 7 U S $ m 2 3

Y e m e n , R e p . U S $ m 3 4 3 U S $ m -1 9 9

B a n g la d e s h U S $ m 1 1 7 5 U S $ m 1 3 1

G a m b ia , T h e U S $ m 3 6 U S $ m 1 3

S a o T o m e a n d P r in c ip e U S $ m 3 4 U S $ m N /A

M a u r ita n ia U S $ m 2 2 5 U S $ m 3

K e n ya U S $ m 4 5 4 U S $ m 3 4

T o g o U S $ m 1 2 0 U S $ m 4 1

M o ld o v a U S $ m 5 8 U S $ m 5 4

Z a m b ia U S $ m 5 4 8 U S $ m 1 7 1

U g a n d a U S $ m 6 3 7 U S $ m 1 8 2

C e n tra l A f r ic a n R e p u b lic U S $ m 1 2 4 U S $ m 7

N ig e r ia U S $ m 1 8 7 U S $ m 1 2 9 7

C a m b o d ia U S $ m 3 4 3 U S $ m 1 8 9

T a n z a n ia U S $ m 9 5 2 U S $ m 1 6 6

R w a n d a U S $ m 3 5 5 U S $ m 4

K y rg yz R e p u b lic U S $ m 2 3 8 U S $ m 6 9

M a li U S $ m 4 0 5 U S $ m 5 2

M a d a g a s c a r U S $ m 5 1 1 U S $ m 2 5

C o n g o , D e m . R e p . U S $ m 1 4 5 U S $ m 1

M o z a m b iq u e U S $ m 7 4 8 U S $ m 1 8 3

B u rk in a F a s o U S $ m 3 9 5 U S $ m 1 3

C h a d U S $ m 2 2 0 U S $ m 1 6

N e p a l U S $ m 3 8 5 U S $ m 1 5

E r itre a U S $ m 1 4 9 U S $ m N /A

N ig e r U S $ m 2 6 6 U S $ m 1 8

G u in e a -B is s a u U S $ m 1 1 3 U S $ m 5

M a la w i U S $ m 4 2 9 U S $ m 4 9

T a jik is ta n U S $ m 1 0 4 U S $ m 1 8

S ie r ra L e o n e U S $ m 1 2 1 U S $ m 4

M ya n m a r U S $ m 5 2 U S $ m 3 1 6

B u ru n d i U S $ m 8 0 U S $ m 2

A lb a n ia U S $ m 2 8 3 U S $ m 5 6

E th io p ia U S $ m 6 6 8 U S $ m 1 6 0

Dev

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A v e ra g e O D A f lo w s a s % G D P1 9 9 6 -1 9 9 9A v e ra g e F D I f lo w s a s % G D P1 9 9 6 -9 9

33 Excluding the following countries, for which data is not available: Afghanistan; American Samoa; Andorra; Aruba;Bermuda; Brunei; Cayman Islands; Cuba; Faeroe Islands; French Polynesia; Guam; Iraq; Korea, Dem. Rep.; Liberia;Liechtenstein; Macao, China; Marshall Islands; Mayotte; Micronesia, Fed. Sts.; Monaco; New Caledonia; NorthernMariana Islands; Palau; Puerto Rico; San Marino; Somalia; Virgin Islands (U.S.); West Bank and Gaza; Yugoslavia, FR(Serbia/Montenegro)34 FDI values from World Investment Report 2001, UNCTAD; ODA and GFCF data from World Development Indicators2001 CD ROM, World Bank; GDP per capita data at current US$ obtained from IMF website,http://www.imf.org/external/pubs/ft/weo/2001/03/data/index.htm





0.2

8.4

0.6

5.3

5.7

2.0

0.7

4.4

5.9

0.8

1.4

15.1

0.2

0.5

11.3

1.0

2.0

2.4

23.2

16.6

0.3

2.3

24.9

1.6

0.2

13.6

8.5

0.8

1.1

0.9

0.9

18.4

12.5

0.6

10.0

2.6

16.9

0.3

9.2

7.4

0.7

0.8

6.1

0.7

34.6

4.9

3.4

19.6

9.8

7.5

15.7

3.3

28.3

3.2

2.8

1.3

0.0

3.1

3.6

0.7

10.3

10.2

8.5

4.4

0.3

1.0

2.9

3.1

3.1

0.0

0.5

21.4

6.0

0.4

5.0

0.0

3.3

2.6

3.0

3.9

1.4

3.2

1.4

0.0

0.0

2.2

4.4

1.2

1.0

5.3

1.9

1.2

6.4

0.5

3.4

1.7

2.9

1.6

4.6

0.9

1.1

1.2

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0

Colombia US$m213 US$m3250

Maldives US$m28 US$m11

Thailand US$m785 US$m3651

Equatorial Guinea US$m25 US$m135

Namibia US$m178 US$m100

El Salvador US$m233 US$m347

Peru US$m419 US$m2197

Macedonia, FYR US$m142 US$m45

Jordan US$m451 US$m211

Romania US$m291 US$m1138

Guatemala US$m245 US$m248

Tonga US$m26 US$m2

Iran, Islamic Rep. US$m174 US$m34

Algeria US$m259 US$m6

Suriname US$m70 US$m0

Paraguay US$m85 US$m194

Bulgaria US$m225 US$m493

Egypt, Arab Rep. US$m1928 US$m917

Cape Verde US$m123 US$m16

Samoa US$m30 US$m7

Russian Federation US$m1213 US$m3797

Swaziland US$m29 US$m66

Bosnia and Herzegovina US$m916 US$m25

Morocco US$m580 US$m653

Belarus US$m43 US$m276

Vanuatu US$m34 US$m26

Bolivia US$m682 US$m819

Kazakhstan US$m156 US$m1299

Syrian Arab Republic US$m200 US$m85

Ecuador US$m179 US$m663

Philippines US$m714 US$m1315

Guyana US$m131 US$m60

Solomon Islands US$m42 US$m15

Turkmenistan US$m18 US$m90

Congo, Rep. US$m226 US$m7

Sri Lanka US$m389 US$m238

Djibouti US$m85 US$m5

China US$m2325 US$m42122

Honduras US$m448 US$m139

Papua New Guinea US$m325 US$m137

Uzbekistan US$m123 US$m150

Indonesia US$m1352 US$m1943

Cote d'Ivoire US$m664 US$m336

Ukraine US$m360 US$m596

Kiribati US$m17 US$mN/A

Cameroon US$m442 US$m43

Azerbaijan US$m131 US$m819

Lao PDR US$m309 US$m94

Haiti US$m341 US$m12

Georgia US$m238 US$m159

Bhutan US$m61 US$mN/A

Dev

elop

ing

Cou

ntry

(UN

CTA

D)

% GDP

Average ODA flows as % GDP1996-1999Average FDI flows as % GDP 1996-99




0.1

0.0

0.0

0.0

0.3

0.4

0.0

0.0

0.3

1.5

1.0

0.2

1.0

0.0

0.0

3.4

0.0

2.2

0.1

0.3

0.0

0.5

0.4

1.5

0.5

0.0

0.2

0.0

0.0

0.3

0.7

3.9

2.7

1.3

0.9

0.8

-0.1

8.5

1.5

0.3

1.7

0.5

0.0

2.1

5.6

3.5

1.2

0.0

1.5

0.9

0.8

6.8

10.4

9.5

4.0

13.5

10.7

9.4

11.6

5.8

11.1

8.3

10.0

11.5

4.3

5.7

6.4

6.7

9.5

1.5

5.1

22.2

3.9

4.9

7.0

4.1

2.2

0.4

1.2

2.9

1.8

0.9

3.9

4.2

3.9

4.3

2.9

4.5

1.1

0.0

0.4

0.8

1.0

4.1

1.2

0.7

1.1

0.0

0.4

0.7

4.0

0.4

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Qatar US$m2 US$m312

Singapore US$m5 US$m9213

Hong Kong, China US$m8 US$m15299

United Arab Emirates US$m4 US$m193

Bahamas, The US$m9 US$m149

Cyprus US$m37 US$m60

Kuwait US$m4 US$m125

Netherlands Antilles US$m122 US$mN/A

Slovenia US$m62 US$m213

Antigua and Barbuda US$m9 US$m24

Bahrain US$m56 US$m751

Barbados US$m6 US$m15

Malta US$m35 US$m362

Korea, Rep. US$m-104 US$m5295

Argentina US$m99 US$m11885

Seychelles US$m18 US$m50

Saudi Arabia US$m22 US$m1356

St. Kitts and Nevis US$m6 US$m32

Uruguay US$m29 US$m164

Oman US$m52 US$m62

Libya US$m7 US$m-124

Czech Republic US$m252 US$m3193

Trinidad and Tobago US$m22 US$m683

Lebanon US$m228 US$m170

Hungary US$m214 US$m2107

Mexico US$m109 US$m11818

Chile US$m124 US$m5928

Venezuela, RB US$m32 US$m3850

Costa Rica US$mN/A US$m517

Croatia US$m65 US$m865

Poland US$m978 US$m5760

St. Lucia US$m24 US$m61

Grenada US$m9 US$m38

Gabon US$m64 US$m217

Mauritius US$m36 US$m38

Slovak Republic US$m160 US$m361

Malaysia US$m-89 US$m5010

Dominica US$m21 US$m16

Estonia US$m74 US$m326

Panama US$m31 US$m851

Botswana US$m91 US$m76

Jamaica US$m31 US$m320

Brazil US$m268 US$m22270

Fiji US$m40 US$m23

St. Vincent and the Grenadines US$m17 US$m68

Belize US$m23 US$m26

Lithuania US$m112 US$m480

Turkey US$m57 US$m813

Latvia US$m86 US$m402

Tunisia US$m177 US$m439

Dominican Republic US$m121 US$m639

Dev

elop

ing

Cou

ntry

(UN

CTA

D)

%GDP

Average ODA flows as % GDP 1996-1999

Average FDI flows as % GDP 1996-99



2.3 Industrial Sectors

2.3.1 Introduction

The problem with aggregated data on FDI isthat it does not tell us anything about theultimate impact or quality of FDI. To thisend, it would be desirable to have a sectoralbreakdown of FDI. For example, efficiency-seeking FDI in manufacturing is oftenthought to have a more desirable impact oneconomic development than FDI in naturalresources. Unfortunately, detailed sectoraldata on FDI in developing countries islacking. This section describes, as best wecan, data drawn from various sources to try toexamine the sectoral composition of FDI indeveloping countries.

2.3.2 Aggregated Data

Figure 10 provides an aggregate view. It canbe seen that, despite the importance of oil,most FDI stock in Africa is in the secondaryand tertiary sector. FDI in South and EastAsia is also concentrated in manufacturing.In contrast, over 50% of Latin American FDIis in the services sector. Unfortunately, thesedata do not provide country detail andexclude many of the least developedcountries.

2.3.3 Sectoral Composition in SelectedCountries

Table 8 below gives an indication of thoseindustrial sectors most important to thepoorest 50% of developing countries,identified in the previous section as recipientsof both (a) substantial FDI stocks (asmeasured against GDP) and (b) ratios ofFDI:ODA, and consequently suggests whichpartnership opportunities to explore in orderto improve the development performance ofcorporate operations.

2.3.4 FDI data at Company Level

Data at company level can also be used toindicate the sectoral composition of FDI.UNCTAD (2001b) provides a table of themulti-national enterprise (MNE) affiliates, bysale, operating in developing countries.35

Table 9 captures data from the 30 MNEs forwhich data is available. This indicates that 35 Although total sales gives an indication of percentageof total value added to society, bear in mind that thisincludes raw materials use as well as value cash added.

although many of the largest MNE affiliatesare in the manufacturing and services sectors,the oil, gas, mining and tobacco industriestend to dominate.

Figure 11 shows the spread of MNEs acrossthe 70 poorest developing countries, ascharted by the presence of Fortune 500businesses present. The four MNEs used asexamples of their sectors earlier in Section2.3 have affiliates in many developingcountries. Figure 12 shows where these fourmajor MNEs have a presence.

Figure 10 FDI Inward Stock by Industryand Region (LDCs) 1999 ($m)

Source: (UNCTAD, 2001a)

Looking across these tables and figures, thedata suggests perhaps piloting acompetencies-development mapping tool asfollows:

• Niger – mining sector – La CompagnieMiniere d’akouta;

• Anglo – construction – Osel OdebrchtServicos; and

• Zambia – manufacturing – Dunlop

2256 23236

7196 479422

63354

7114

267503

101003

280720%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Africa Asia Latin Americaand the

CaribbeanRegion

Perc

ent

TertiarySecondaryPrimary



To further scope the ODPCI further researchwill be needed on the full range of corporateoperations and affiliates presence in thecountries listed in Table 5.

2.4 Market ProjectionsBecause of the difficulty of findingcumulative data on corporate activity indeveloping countries, and the even moreproblematic task of accessing predictions onmarket opportunities by sector, two shortcase studies are presented below, for Nigeriaand Vietnam. As the ODPCI programmedevelops, similar mini case studies willdevelop for countries where high relativelevels of FDI stock coincide with close ratiosof FDI to ODA.

2.4.1 Nigeria36

In terms of GDP per capita, Nigeria is the22nd poorest country in the world. Nigeriacombines a high relative FDI stock (44.5% ofGDP), with a FDI:ODA ratio of around 3:1,as well as an increasing rate of inward ODAflows arising from a return to more politicalstability. Thus, in very broad terms, Nigeriademonstrates the characteristics needed forinvesting corporations to work with socialpartners to pursue the country’s developmentpriorities. Two recent detailed case-studies onthe transition of the community developmentwork of Shell Petroleum DevelopmentCompany towards social partnering supportthis assertion (Goyder & Lander, 2002;Sullivan & Warner, 2002).

While no data is available for the number ofparent corporations based in Nigeria there are48 major foreign affiliates (UNCTAD2001c). Nigeria has been a traditionally largeoil exporting country and usually takes amajor proportion of Africa’s FDI inflows(UNCTAD, 1998). However, Nigeria’s (andAfrica’s) inflows are not concentrated solelyin the primary sector. For example, theprimary sector as a whole accounted for littleover 30% of total FDI stock in Nigeria in1992, whilst manufacturing accounted foralmost 50% and services close to 20%(UNCTAD, 1998, p.13).

36 Much of the information in parts 2.5.1 and 2.5.2 wasobtained through Firstcall.com, a service of ThomsonFinancial, access to which was provided free as part of abroad academic program.

As indicated in the table below, Nigeria ispredicted to continue to attract FDI.Measured as a percentage of GDP, flows areforecast to increase.

Economicindicator

1997-2000 2001(forecast)

2002(forecast)

Real GDP(% change)

2.3% 3.5% 3%

FDI(% GDP)

4.4% 4.6% 7.0%

Source: Adapted from eBearsovereign, GlobalDebt Research, 20 August 2001, p.3

The main growth market however is likely tobe the telecommunications sectors (CreditSuisse/First Boston 2002) due to recentprivatisation plans. Econet Nigeria, forexample, expects mobile penetration to reachover 6% over the next five years, which isexpected to lead to further investment inflows(ibid.).

In summary, in Nigeria both inward FDI andODA flows are likely to increase over thenext few years. With this base, the country iswell placed to work with the corporate sectorthrough social partnering to help meet certainpoverty-focused development priorities. Thedominant oil and gas sector remains a likelycandidate for piloting the proposed‘competency-development’ mapping tool.This is so not least because a new revenuesharing formula has now passed into law. Intime this will provide public sector resourcesalongside the resources and competencies ofthe operating companies, international donorsand NGOs.

A second sector, which might provide anopportunity to test the proposedcompetencies-development mapping tool, istelecommunications. Anticipated growth inthis market, and the prospect of opentendering for concessions, provides theprospects of foreign corporations looking forcompetitive advantage. A detailed ‘map’showing how the corporation’s businesscompetencies would be integrated with thoseof local partners to meet national andregional development priorities, couldprovide bidders with just such an advantage.

2.4.2 Vietnam

Against the same measures, Vietnam is the36th poorest country. FDI stocks are 55.6% ofGDP (at 1999) and the FDI:ODA ratio for theperiod 1996 to 1999 is around 2:1. LikeNigeria, data is only available for number of



affiliates rather than parent corporations.Vietnam has 1,544 foreign affiliates (out of445,929 in South, East and South-East Asia).Vietnam's exports are predominantly oil,textiles and seafood.

More recently Vietnam has begun to developits tourism industry. For example, 2.33mforeign tourists visited in 2001, 8.9% morethan in 2000. The country’s low-cost touristpackages, proximity to China (a fast-growingsource of tourists), and its ranking as the“safest place in Asia” by, amongst others, theHong Kong-based Political & Economic RiskConsultancy, have helped bolster the industry(Salmon Smith Barney 2002, p.2).

Tourism’s position as a growth sector, amarked increase in Western corporate interestin Vietnam - FDI stocks as a percentage ofGDP measured just 3.6% in 1990, soaring to55.6% by 1999 (UNCTAD 2001a) - andcontinued liberalisation of the Vietnameconomy and trade agreements,37 suggest thatVietnam and the tourist sector might providean opportunity to pilot the ODPCIprogramme.

Whilst the Ministry of Planning &Investment noted that Vietnam enjoyed a24.4% increase in FDI registered capital in2001, amounting to US$2.4bn, actualdisbursed capital increased more modestly byonly 3.2% (Salmon Smith Barney 2002).Further, FDI inflows have been“disappointedly low” in recent years. Afterpeaking at $2 billion per year in the mid-1990s, FDI has fallen back to $1 billion orless in recent years. Vietnam experienced anupsurge in interest from foreign investors adecade ago, when the country was firstopened up to foreign investment. However,bureaucracy, a lack of transparency and anoften arbitrary treatment of foreign investors,had a cumulative adverse impact on investorsentiment, from which Vietnam has yet tofully recover. Recent measures to streamlinethe FDI approval process include giving localauthorities, especially those in Ho Chi MinhCity, greater autonomy to improve theinvestment climate and ease administrativehurdles for foreign investment projects(eBearsovereign, 2001).

37 for example, the recently ratified US Bilateral TradeAgreement (BTA)

3 The Way Ahead

As discussed in Part 1 of this report, missingat the moment is a systematic assessment ofthe full range of options for a company tooptimise its development performance. Theprincipal business argument supporting suchan assessment is that forward-lookingbusiness multi-national enterprisesincreasingly see a commercial interest inreversing levels of poverty and socialexclusion, not least because these cancontribute to alienation and extremism incommunities living in the proximity of theiroperations.

This paper suggests that a reappraisal of thecurrent practice of corporate socialresponsibility in developing countries isneeded to achieve this end. Some clear social(and business) benefits have arisen from theresources invested in developing codes ofconduct, improving labour standards, anddelivering more transparent businesspractices and community projects. However,in many cases:

• the costs to business are increasinglyseen as disproportionate to the benefits;

• voluntary social projects are seedingliabilities associated with creatingcommunity dependency on companiesand undermining the role of localgovernment; and

• some corporations have allowedthemselves to be cajoled into replicatingthe activities of non-governmental anddonor agencies, and as such are failing tooptimise the unique and complementarycontributions they could make toreducing poverty through their corebusiness.

In the least developed regions of the world,the new approach alluded to in Part 1requires companies to ‘unpack’ their fullrange of competencies and resources thatcould impact positively on poverty reductionpolicies and related development priorities,and implementing those for which, either byacting alone or in partnership, there is abusiness-case.



Tab

le 8

Indu

stri

al S

ecto

rs M

ost R

elev

ant t

o Se

lect

ed C

ount

ries

(bas

ed o

n G

DP)

Cou

ntry

Oil

and

gas

Min

ing

and

min

eral

sA

gric

ultu

re,

Fore

stry

,To

bacc

o

Man

ufac

turin

gR

etai

lU

tiliti

es a

nd T

rans

port

Con

stru

ctio

nFi

nanc

ial S

ervi

ces

Cha

d, 2

000

(and

fish

ing)

3.1

% o

fG

DP

35%

of G

DP

11%

of G

DP

(see

fina

ncia

l)0.

6% o

f GD

P (w

ater

and

elec

trici

ty) 2

4.4%

(com

mer

ce a

ndtra

nspo

rt)

2%of

GD

P9.

6 %

of G

DP

(all

othe

r ser

vice

s)

CD

R, 1

999

8% o

f GD

P54

% o

f GD

P4%

of G

DP

(see

fina

ncia

l)4.

5% o

f GD

P (in

clud

ing

tele

com

mun

icat

ions

)2%

GD

P26

% o

f GD

P (a

ll ot

her s

ervi

ces,

incl

udin

g tra

de a

nd c

omm

erce

)N

iger

, 200

0 (e

st.)

at fa

ctor

cos

t?

7% G

DP

39%

of G

DP

7% G

DP

(see

fina

ncia

l)7%

GD

P?

29.4

% (a

ll se

rvic

es)

Mal

awi,

1999

?1%

GD

P38

% G

DP

13%

GD

P?

6% (i

nclu

des t

elec

omm

unic

atio

ns)

2% G

DP

8% G

DP

Zam

bia,

199

8(E

st.)

6.1%

GD

P17

.3%

GD

P11

.4%

GD

P16

.9%

GD

P (+

2.3

% h

otel

s)10

% (i

nclu

des

tele

com

mun

icat

ions

)5.

1% G

DP

9.6%

GD

P

Moz

ambi

que,

1999

0.2%

GD

P30

% G

DP

9.6%

GD

P(s

ee fi

nanc

ial)

12%

(inc

lude

ste

leco

mm

unic

atio

ns)

8.6%

GD

P37

% (a

ll se

rvic

es)

Cot

e d’

Ivoi

re,

1999

Neg

ligib

le (pet

role

um extra

ctio

n)

23%

GD

P +

7% Agr

ibus

ines

s

(See

fina

ncia

l)14

% G

DP

(incl

udes

pet

role

umR

EFIN

ING

)5%

GD

P29

% G

DP

(all

serv

ices

)

Ang

ola

1999

4.1%

grow

th61

.5%

GD

P

5.9%

gro

wth

/ 9%

GD

P1%

gro

wth

/6%

GD

P7.

1% g

row

th /

3.5%

GD

P?

1.3%

gro

wth

/ ne

glig

ible

(doe

sn’t

incl

ude

trans

port

5% g

row

th /

3%G

DP

?

Leso

tho

2000

/01

16%

GD

PN

eglig

ible

11%

GD

P6%

GD

P6%

GD

P13

% G

DP

?N

iger

iaG

uyan

a, 2

000

?13

.6%

GD

P33

% G

DP

10.5

% G

DP

?7.

7% G

DP

4.9%

3.5%

GD

PH

ondu

ras,

1998

(Est

.) at

fact

orco

st

?2%

of G

DP

19%

of G

DP

19%

GD

P?

10%

GD

P5%

of G

DP

11%

of G

DP

Nic

arag

ua, 2

000

?1%

GD

P32

% G

DP

46%

GD

P?

4.5%

GD

P (in

clud

ing

tele

com

mun

icat

ions

)6%

GD

P2.

5% G

DP

Equa

dor,

1999

10.9

%0.

6% G

DP

12.2

% G

DP

21.3

%?

9.7%

(inc

lude

s com

mun

icat

ions

)4.

5% G

DP

5.5%

Kyr

gyz

Rep

ublic

,20

00(S

eefin

anci

al)

(See

fina

ncia

l)36

.7%

GD

P21

.5%

GD

P(S

ee fi

nanc

ial)

4.7%

(inc

lude

s com

mun

icat

ions

)3.

1% G

DP

othe

rs 3

4%

Mol

dova

??

22%

GD

P (+

13%

proc

essi

ng)

?13

% G

DP

11.5

% (i

nclu

ding

com

mun

icat

ions

)3%

GD

P7%

GD

P

Arm

enia

, 200

0?

?30

% G

DP

21%

GD

P?

5% (i

nclu

des c

omm

unic

atio

ns)

10%

GD

P?

Indo

nesi

a, 1

999

??

4.5%

of F

DI

63%

of F

DI

9% F

DI

21%

of F

DI

1% o

f FD

I?

Tab

le 9

The

larg

est 3

0 M

NE

For

eign

Aff

iliat

es in

LD

C (1

999)

for

whi

ch d

ata

exis

t

Fore

ign

affil

iate

Hos

t cou

ntry

Hom

e co

untr

yIn

dust

rySa

les $

mill

ion

Sale

s / V

alue

add

ed1

Dun

lop

Zam

bia

Lim

ited

Zam

bia

UK

Tire

s and

inne

r tub

es87

7112

3.5%

2B

rass

erie

s et L

imon

ader

ies D

u R

wan

da S

AR

wan

daN

ethe

rland

sM

alt b

ever

ages

6494

88.8

%3

Shel

l Exp

lora

tion

and

Dev

elop

men

tM

adag

asca

rM

adag

asca

rN

ethe

rland

sO

il an

d ga

s exp

lora

tions

4286

36.2

%

4Sh

ornc

liffe

ltd

Solo

mon

Isla

nds

UK

1363

154.

9%5

Bor

al G

as S

olom

ons l

tdSo

lom

on Is

land

sA

ustra

liaG

as e

xplo

ratio

ns12

9814

7.5%

6O

sel O

debr

cht S

ervi

cos

Ang

ola

Bra

zil

Com

mer

cial

con

stru

ctio

n78

55.

8%7

Ash

anti

Gol

dfie

lds l

tdTa

nzan

iaG

hana

Gol

d or

es28

41.

8%8

Paci

fic re

sour

ces l

tdV

anua

tuH

ong

Kon

g13

424

.1%

9B

HP

Stee

l Bui

ldin

g Pr

oduc

ts N

ew C

alad

onia

SAV

anua

tuA

ustra

liaSt

eel

134

24.1

%

10La

Com

pagn

ie m

inie

re d

'akou

taN

iger

Japa

nM

inin

g90

1.2%

11Tr

avel

Indu

stry

Ser

vice

s ltd

Solo

mon

Isla

nds

Fiji

Tran

spor

t64

7.3%

12C

ompa

gnie

She

ll de

Gui

nee

Gui

nea

Net

herla

nds

Petro

leum

pro

duct

s exp

bul

k te

rmin

als

500.

4%13

Man

ufac

ture

de

Taba

cs d

e l'o

uest

afr

icai

neSe

nega

lFr

ance

Toba

cco

490.

4%14

Fiso

ns B

angl

ades

h ltd

Ban

glad

esh

Fran

cePh

arm

aceu

tical

pre

para

tions

480.

0%15

Bra

sser

ies e

t Lim

onad

erie

s Du

Bur

undi

Sar

iB

urun

diN

ethe

rland

sB

ottle

d an

d ca

nned

soft

drin

ks46

1.2%

16M

yanm

ar K

asho

co.

ltd

Mya

nmar

Japa

nTr

adin

g41

17Jo

hn W

alkd

on A

nd C

ieB

enin

UK

Piec

e G

oods

390.

7%18

Cob

ol S

hipp

ing

Co.

Inc

Libe

riaJa

pan

Tran

spor

t38

19Th

e G

ener

al E

lect

ric C

o. o

f Ban

glad

esh

ltdB

angl

ades

hU

KM

otor

s and

Gen

erat

ors

380.

0%20

Nes

tle S

eneg

al sa

Sene

gal

Switz

erla

ndFl

uid

Milk

270.

2%21

Ves

pers

ship

ping

cor

pLi

beria

Japa

nTr

ansp

ort

2722

man

ufac

ture

bur

kina

be d

e ci

gare

ttes s

aB

urki

na F

aso

Fran

ceTo

bacc

o26

0.2%

23To

tal T

exac

o N

iger

saN

iger

Fran

cePe

trole

um p

rodu

cts e

xp b

ulk

term

inal

s25

0.3%

24To

go e

t She

ll sa

Togo

Net

herla

nds

Petro

leum

pro

duct

s exp

bul

k te

rmin

als

250.

4%25

Spie

Bat

igno

lles l

tdLe

soth

oFr

ance

Engi

neer

ing

serv

ices

220.

4%26

Cic

a B

urki

naB

urki

na F

aso

Fran

ceC

ars a

nd o

ther

mot

or v

ehic

les

210.

2%27

Nou

velle

s Sav

onne

ries d

e l'o

uest

afr

ican

saSe

nega

lU

SC

lean

ing

prep

arat

ions

200.

2%28

Hum

olco

Tra

ns in

cLi

beria

Japa

nTr

ansp

ort

1929

Mic

Tan

zani

a ltd

Tanz

ania

Luxe

mbo

urg

Elec

troni

c pa

rts19

0.1%

30M

amiy

a-O

pB

angl

ades

hJa

pan

Spor

ting

and

athl

etic

s goo

ds17

0.0%



Figure 11 Number of Fortune 500 Companies Present in the Poorest Developing Countries

Source: Adapted from FDI in Least Developed Countries at a Glance, UNCTAD 2001

Figure 12 Presence of Selected MNEs in Developing Countries

Source: Barclays, (2001); Vodafone, (2001); BP, (2001); Unilever, (2000)



References

Acutt, N. & Hamman, R. (2001) Towards Evidence of the Costs and Benefits of Tri-SectorPartnerships, Working Paper No. 10. London: c/o CARE International, Natural Resources Cluster,Business Partners for Development.

Barclays (2001) Barclays PLC, Results Announcement: 31st December 2001. London: Barclays.

Berman, E. & Machin, S. (2000) Skilled-Based Technology Transfer: Evidence of Factor-BiasedTechnological Change in Developing Countries. Boston: Boston University, Dept. of Economics.

Borensztein, E., De Gregorio, J. & Lee, J-W (1998) “How Does Foreign Direct Investment AffectEconomic Growth?”, Journal of International Economics, 45, pp. 115-135.

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Embedding Development Performance

Building on Existing Business Management Tools

Michael Warner, Tim Devitt and Anthony Walker

August 2002



The ODPCI Programme

Funded by






CONTENTS

Part 3 Embedding Development Performance 79

3.1 Introduction 79

3.2 Management Approaches 793.2.1 Social Impact Mitigation and Risk Assessment 803.2.2 Dedicated Community Development Programmes 803.2.3 Scenario Planning 813.2.4 Resource and Market Based Strategic Planning 823.2.5 Relationship Marketing 843.2.6 Growth Strategies 86

883.3 Conclusion 90

References 91

Figure 13 Types of Internal and External Information Deployed to Undertake ScenarioPlanning 84

Table 10 Performance of Existing Business Management Tools 79



Part 3 Embedding Development Performance

3.1 Introduction

Although there are examples of successfulmulti-sector social partnerships involvingcorporate operations in developing countries,the task of replicating these good practicesthrough some systematic management tool,and then ‘embedding’ or ‘mainstreaming’this tool into day-to-day operations remainselusive.

This part of the report looks at ways in whichthe proposed development performancemanagement tool might be embedded withinconventional business practices. Ninebusiness management tools and approachesare investigated: social impact mitigation;dedicated community developmentprogrammes and country scenario planning;resource and market-based strategic planning;customer relationship marketing, and growthstrategies (internal development, acquisitionsand strategic alliances).

Each management tool is assessed against thefollowing performance criteria:

• Extent to which activated automaticallyby some core business activity;

• Extent to which activated by more thanone department;

• Clarity of management responsibility;

• Implementing and transaction costs;

• Pro-actively explores the additionalcontribution the company could make tothe country, region or communitiesdevelopment priorities;

• Extend to which full range of businesscompetencies and resources assessed;

• Extent to which a strong business-case isarticulated; and

• Opportunities to explore partnership.

Table 10 summaries the findings. Highlightedare those tools that seem to lend themselvesto embedding a competencies approach todevelopment performance.

Table 10 Performance of Existing Business Management ToolsManagementTool/Approach

Performance Criteria

Aut

o ac

tivat

ed

Aut

o ac

tivat

ed in

mor

e th

an o

neD

ept

Cle

arm

anag

emen

tre

spon

sibi

lity

Low

impl

emen

ting

cost

s(in

clud

ing

Tra

nsac

tion)

Pro

-act

ivel

yex

plor

es o

ptio

nsfo

r de

velo

pmen

tpe

rfor

man

ce

Ful

l ran

ge o

fbu

sine

ssco

mpe

tenc

ies

and

reso

urce

sid

entif

ied

Str

ong

Bus

ines

s-ca

se

Par

tner

ship

sex

plor

edSocial impact mitigation √√√ √√√ √Dedicated CommunityDevelopment

√ √√ √√

Scenario Planning √√ √√ √√√ √√ √√ √√ √√Resource-basedStrategic Planning

√√√ √√√ √√ √√√ √√ √√ √√

Market-based StrategicPlanning

√√√ √√√ √√ √√√ √√√ (p) √√√ √√ √√

Relationship marketing √√√ √√√ (p) √√√ √√ √√Growth strategies• Internal

development

√√ √√ √√ √

Growth Strategies• Acquisitions n/a38

Growth strategies• Strategic alliances

√√ √√ √√√ √√√ √√√ √√√

38 The authors know of no examples where an operating company has acquired an organisation (private or non-profit) withthe expressed intention of building in-house expertise in community development.



3.2 Management Approaches

3.2.1 Social Impact Mitigation andRisk Assessment

Various types of compliance requirementsare aimed at mitigating the adverse socialimpact of business operations. Theserequirements are set by, inter alia,environmental regulators at regional ornational levels (usually the Ministry ofEnvironment), project investors, and thecompany itself (either the parent corporationand/or the specific business operation). Typesof social compliance include:

• Requirements for studies that identifyand mitigate the adverse social impactsof project operations on communities,usually forming part of theEnvironmental (and Social) ImpactAssessment report;

• Due Diligence reports (usually preparedfor investors and which include anassessment of social and political risk);

• Preparation of resettlement andrehabilitation plans and relatedcompensation payments;

• Compliance with requirements forinformation disclosure andpublic/stakeholder consultation (again,often part of the EIA); and

• Social and political risk assessment.

Management responsibility for meeting theserequirements is usually embedded within theHealth, Safety and Environment department,and is invariably (a) undertaken by just onedepartment (though others such asengineering may contribute); (b)predominantly controlled by the company;(c) focuses on managing social risk andmitigating negative social consequencesrather than seeking developmentperformance; and (d) involves metrics andsocial reporting procedures that measureperformance in terms of the quality andquantity of ‘activities’, such as consultationor community participation, rather than‘outcomes’ such as the sustainability ofcommunity projects or improved localgovernance.

With regard to costs, these are moderate tohigh. The transaction costs involveemploying environmental and socialconsultants to undertake impact or risk

assessment studies and prepare reports. Theimplementation costs involve revising projectdesigns and schedules in response to thefindings of the studies, and delivering andmonitoring impact mitigation and riskmanagement plans. The transaction costs ofthese studies are an accepted norm for mostbusinesses, viewed as ‘just another permittingcost’, along with the costs of complying withfinancial, legal, construction and a host ofother regulatory and permitting requirements.The implementation costs of project redesignand mitigation can be far higher, especially ifthe assessment procedures have been carriedout to a high standard and serious attentionpaid to the results.

With regard to the business-case, foremostthe environmental and social impactassessment is about winning formalenvironmental clearance from the countryregulators. For the ‘social’ component of arisk assessment the business-case is moreabout securing the local social license tooperate, and satisfying risk underwriters anddue diligence requirements of investors. Lessprominent, if at all, is recognition within theoperating companies that the management ofsocial issues might be a means to achievecompetitive advantage (e.g. in tendering),improving market intelligence, marketing andbrand awareness, or ensuring staff andcustomer satisfaction.

The social partnering approach to CorporateSocial Responsibility fits only moderatelywell with the tools of social compliance.Most important, however, is that thoughsocial risk management, impact mitigationand activity-based social reporting are ofrelevance to social partnering, they are notusually the central theme of a socialpartnership. As indicated in a recent PwCreport on the BPD programme (PwC, 2002),what matters for successful partnering isdevelopmental outcomes for society thataccentuate the positive contribution thatbusiness can make, as opposed to simplymitigating the operation’s negativeconsequences.

The exception, and an option tested in theBPD programme, is to ‘bolt’ partnering ontothe phase of the environmental impactassessment process at which theenvironmental and social management plan(EMP) is developed (Sullivan and Warner,2002). This research, with Shell PetroleumDevelopment Corporation in Nigeria(SPDC), recognised that the identification of



mitigation measures and preparation of theEMP could be used to either triggercommunity development planning, wherenone is already taking place, or integrate withaspects of existing community developmentprogrammes where these were already on-going (either by the company or by others).

The idea is that partnering at the time of EMPpreparation would bring together two sets ofresources: those of the company set aside formitigating potentially adverse social andhealth impacts from oil and gas development,and those from the that part of the companydedicated to community development.Joining these two pools of resources togetherwould then act as an incentive forinternational development agencies, NGOsand government authorities to work incollaboration with the company, leveragingyet further resources.39 Further testing of thisapproach to partnering is needed.

3.2.2 Dedicated CommunityDevelopment Programmes

In addition to compliance-led socialmanagement, an alternative is to shift theresponsibility for community developmentactivities to a dedicated CommunityDevelopment, CSR department or unit, orlocal company-led foundation. In these(essentially ‘outsourcing’) scenarios, theprospect of community developmentprogrammes being integrated with corebusiness resources and competencies isslight. Frequently the staff in these units haveNGO, public sector or donor agencyemployment experience. It is therefore notsurprising that the ‘style’ of developmentperformance promoted by such new units issimilar to that of an NGO or aid agency.

Further, these programmes are in part drivenby the need for the operating company to ‘beseen’ to be contributing to the developmentof local communities, not only to assure thelocal social licence to operate, but to provideexamples for the companies AnnualEnvironmental and Social Reports. This PRcomponent encourages a type of contribution

39 Thus transforming, for example, a programme of STDawareness with construction workers, into an area-wideprogramme of STD awareness and prevention; ortransferring funds for trucking of water supplies tomitigate against temporary siltation of surface drinkingwater sources, to a partnership arrangement involvinglocal government, donors and SPDC’s CommunityDevelopment department to construct permanent deeptube wells.

to community development that mirrors theexpectations of those for whom these socialreports are aimed, namely, internationalcampaigning NGOs and domestic customers.

For both these reasons, although themanagement of dedicated communitydevelopment programmes is often strong(with direct lines of communication to theCEO), the integration of core businessresources and competencies into theseprogrammes is often weak. Beyond a desireto use community development programmesto gain a local social license to operate andsatisfy head office, investors and regulators,senior managers in the operating companyrarely see much tangible evidence of a strongbusiness-case. Indeed, some argue thatcompany-led community developmentincreases communities’ expectations,undermines the role of government as aservice provider, and creates a long-termdependency on the company by communities,all of which are beginning to seed future costand reputation liabilities for the company.

Below are some non-attributable quotationsand illustrations to demonstrate these points.

• When asked to identify the single mostimportant driver behind an oil major’soperations in Angola declaring aninterest in undertaking variouscommunity development programmes, astaff member answered: “pressure fromLondon”.

• Following a presentation to a group ofsenior social and environmentalmanagers in the headquarters of an oilmajor, one of the managers remarkedprivately: “interesting presentation,especially the idea of using more of thecore competencies of the business tobetter manage community issues. Yourbiggest obstacle now is the SustainableDevelopment department inside_______”.

• At a recent UN Global Compact meetingon ‘business and conflict’ (May 2002),the author of this report noted that onlyfour of the 79 representatives in thedebate (of which more than a third werefrom business) had any identifiable corebusiness background, e.g. in engineering,marketing, sales or businessmanagement.

• “Just what proportion of operating costsdo you want us to waste on spend



development” – Managing Director of amedium scale international miningcompany (May 2002, Global MiningIndustry, Toronto).

• Observation of the author: if you addtogether the total funds spent by RoyalDutch/ Shell on environmental and socialprogrammes and foundations across theirglobal operations, the sum exceeds $300million a year, making Shell effectivelyone of the worlds largest NGOs.

Despite these reservations, the dedicatedcommunity development programmes ofoperating companies is the principal areawhere the company proactively seeks to adddevelopment, and in particular pro-poor,value to society. Staffed by social andcommunity development specialists, projectsare often put in place to meet the objectivesof sustainability, affordability andaccessibility. What is missing in many suchprogrammes, however, is any systematicsearch across other departments in thecompany for core business competencies thathelp these objectives to be achieved (seeTable 2 in Part 1 for an initial inventory ofbusiness competencies relevant to national,regional and local development priorities).

Finally, with regard to partnerships, thelandscape is slowly changing. The BPDprogramme has highlighted a number ofcompanies actively seeking NGO and foreignaid agency partners to assist them indesigning and managing communityprogrammes. This shift is illustrated in anaddress by SPDC to the delegates of astakeholder conference in the Niger Delta,Nigeria. In the address, the CorporateCommunity Development Chief Advisor, Dr.Deidre LaPin, made the followingobservations:

“A revolution is…sweeping theglobe. Called the partnershipmovement, this revolution buildsalliances across the traditionallyseparate sectors of business,government, funding agencies,development organizations, civilsociety and, of course, communities… People and organizations mustco-operate, as genuine partners, – inremaking the physical infrastructure,the basic services, the naturalresources, and the civic institutionsthat have grown weak with neglect.Now Nigeria’s forefathers fully

understood the idea that working inpartnership with others is not anoption; it is a civic obligation…Partnering puts consultation into anew light. It converts consultationinto dialogue, it affirms equalitybetween the partners, it identifiesshared goals, deepens co-operation,creates a sense of mutual benefit andmutual respect, generateswillingness to pool resources, andreduces risks. At the end of theprocess we are all winners.”

However, a recent study of partnershipsinvolving SPDC found that very few showedthe true characteristics of partnership,namely: equal power balance and control,shared costs and risks, and mutual benefits(Goyder & Ladbury, 2002). For the mostpart, the arrangements were more similar tooutsourcing. One reason for this is that therole of the company in these partnerships hasbeen unclear. Having set up an in-housecommunity development department staffedprincipally by social development specialistsrather than from core business, it is notsurprising that when the communitydevelopment component of a localpartnership is outsourced to an NGO, acredible role for the company is missing. Insummary, the question raised by the aboveaddress is not ‘whether’ multi-sectoralpartnering is now part of the toolbox ofdevelopment performance for corporateinvestments in developing countries, but‘how’ best to make it a reality.

3.2.3 Scenario Planning

For major new investments, for example,entry into new markets, countries or regions,corporations may voluntarily undertake aform of Scenario Planning. Due to their sizeand complexity, and because they are not aregulatory requirement, these planningexercises tend to be carried out on an ad hocbasis rather than automatically triggered byevents, and managed by a combination ofsenior managers from headquarters and fieldoperations.

Scenario Planning for new investments is aprocess that promotes analysis of futureoutcomes. It is in effect, “crystal ball gazing”– asking critical political, economic andsocial questions around “what if?” A numberof realistic scenarios are envisaged,articulated often by experts with particular



perspectives on politics, economics etc. Fromthese future scenarios different corporatestrategies are applied incorporating elementsboth internal and external to the proposedbusiness.

The result may vary from contingency plansfor managing probabilistic events, to apreferred investment strategy based aroundthe ‘most likely scenario’. Contingency plansprepare the company for eventualities, butnot necessarily the correct timing. In contrast,investment strategies will require a schedule,though may also contain a dynamic emergentelement, to account for variations in theexpected scenario. Strategies are the mostlikely outcome when the most likely scenariocan be managed through factors under thecontrol of the company, i.e. internal factors.Figure 13 illustrates the types of internal andexternal information deployed to undertakescenario planning.

Using models such as PEST (political,economic, social and technological) orSWOT analysis, corporations can identifyexternal and internal influences. Both ofthese tools lend themselves to identifyingsynergies (and tensions) between differentactors (company, government authorities(regulators, central and local serviceproviders), NGOs, community groups,suppliers and foreign aid agencies. There iseven the opportunity of inviting potentialsocial partners to join the Scenario Planningprocess, thereby providing the futureoperating company with early knowledge ofthe underlying interests of key players and, inturn, rendering the operating environmentmore predictable.

Since ‘risk’ is a key component of investmentScenario Planning, it is increasingly likelythat some type of political, and possibly evensocial (i.e. community and NGO), riskcomponent will be included in most ScenarioPlanning procedures. Hence developmentperformance (i.e. contributions beyondconventional taxes, dividends and wagesmade by the operating company towards acountry or region’s development priorities)might in itself be considered as a form ofcontingency planning or risk management. Itseems unlikely at the moment thatcorporations are considering developmentperformance within Investment ScenarioPlanning in any form other than philanthropyor company-led community developmentprogrammes.

In the future, though, it is not inconceivablethat corporations looking at medium- to long-term market opportunities (such as theacquisition of state-owned industries, wherepublic expectations of social benefits fromcorporate investments tend to run high) mightbegin to factor more innovative developmentperformance approaches into their overallinvestment strategies, not least in order togain competitive advantage. Just this type ofscenario is unfolding in Colombia. Here BPrecognises that it can gain a competitiveadvantage in winning the rights to new oiland gas assets by proposing a developmentperformance strategy that leaves a long-termsustainable, non-oil dependent, developmentlegacy in the region of operations. Learningfrom its efforts at multi-sector partnering inthe region of Casanare, the company isconsidering adopting more of a core businesscompetencies approach to developmentperformance, combined with socialpartnering.

Another reason why Scenario Planning ofnew investments might provide anappropriate management ‘hook’ forpromoting a core competencies approach todevelopment performance, is that theapproach will likely require new staffingskills. From the experiences of the BPDprogramme, it is clear that once a companyestablishes an internal communitydevelopment department or team, it isdifficult to change staff culture to either acore competencies or partnering ethos.

The business competencies approach todevelopment performance will not require thesame type of community development skillsand staff that we see in major corporations atpresent. Instead, staff will be needed withexperience of a particular businesscompetency, e.g. marketing, or engineering,combined with knowledge about how theseskills can be dovetailed with thecompetencies, skills and resources ofgovernments, NGOs and foreigndevelopment agencies. Recognising that sucha team may need to be built from scratch ismore likely to be identified at the level ofinvestment Scenario Planning than at thelevel of operational risk assessment.

This framework can be linked with thefollowing frameworks (Schoemaker, 1992) tocreate a more holistic approach to thestrategic thinking.



Figure 13 Types of Internal and External Information Deployed to Undertake ScenarioPlanning

Source: (Adapted from Schoemaker, 1991)

3.2.4 Resource and Market BasedStrategic Planning

Resource-based strategic planning (Segal-Horn, 2002) looks at the business’s resourcesand capabilities and uses these as the startingpoint for developing the business. What canbe termed ‘inside-out’ logic. In contrast,market-based strategic planning (‘outside-in’logic) is led by the demands of the marketand looks to the business to adapt.

Naturally all business development strategieswill have an element of both approaches,though with an emphasis on one.

In general, a manufacturer with a narrowproduct range and well established patterns ofdistribution, such as Coca Cola, will leantowards resource-based growth strategies,whilst businesses with a wide range ofproducts and services, and a competency forrapid structural change and/or product

development, such as some softwaremanufacturers and major retailers, will leantowards market-based strategies.

In resource-based strategic planning, the aimis to both identify innovative opportunities tocombine existing resources40 and morecreatively apply market knowledge andmanagement skills, in order to add value toproducts and services from the perspective ofthe end-user. Successfully used, thiscombination creates a differential advantageto the business as well as greater barriers toentry for competitors. Evidence has shownthat two organisations with a similar resourcebase will exploit the market more or lesssuccessfully depending on their capabilities41

40 Tangible resources include: land, buildings,materials, low cost manufacturing, productionfacilities, research and development expertise,cash etc. Intangible resources include: ownershipof raw material sources; long-term supplycontracts; distribution coverage, access to finance.41 Capabilities include: orientation to customer service,design expertise, application experience, trade

Macro - forces

Industry Forces

Business

Political, Economic, Social Technological

Barriers, Competitors, Suppliers, Customers, Substitutes

Demand, Prices, Costs

Macro-environment alscenarios

Industryenvironmentalscenarios

Mixed Scenarios

Firm specificscenarios

Contingency PlansInvestment Strategies



in management and knowledge of markets. Insummary, the success of resource-basedstrategic planning depends on ‘resources +capabilities’.

In market-based strategic planning thebusiness has to be far more flexible. Theapproach identifies (and sometimesanticipates) new market opportunities. Thespeed of reaction of the business to theseopportunities is the central theme, with theresulting business strategy emergent ratherthan deliberate. In this approach moreemphasis is placed on building up thenecessary resources and capabilities neededto exploit an identified the marketopportunity. This contrasts with resource-based strategic planning where the emphasisis on better exploiting existing resources.

An example of a resource-based strategywould be Coca Cola. The business has astrong distribution network in most countriesof the world. It also has a managementcapability able to recognise and exploit newmarket opportunities based on the samecustomer base. Part of the strategic planningof the company will therefore include lookingat how to use its existing distribution networkto deliver a wider range of products to thesame customers.

In contrast, the Fast Moving ConsumerGoods (FMCG) sector is very much marketdriven. The fickleness of the consumer hasensured that the speed and flexibility of thebusinesses is paramount. In this scenario themarketing teams are the principal strategicassets, with capabilities in developing newmarketing strategies that require no or onlyminimal changes to the company’s resourcebase.

With its emphasis on product innovation andyet strong presence in the FMCG sector, the3M corporation epitomises a company thatrelies on both resource and market basedstrategic planning.

In the context of the ODPCI programme,what is particular interesting about thesevariations on strategic planning, is that theyare analogous to the two options fordeveloping new social partnerships. The firstoption is to recognise that corporateoperations, governments and aid agencieshave not worked collaboratively before there

relationships; ability to utilise relevant technologies,systems design capability, speed of managementresponse, brand reputation, staff attitude.

is likely to be significant innovation andsynergies to be gained from exploring thecomplementarity of the resources andcapabilities of each. This explorationidentifies a suitable social theme andintervention strategy. This is analogous toresource-based strategic planning. Thealternative is to identify the most urgentdevelopment priority theme and the broadparameters of a social project or programmeto address this need (analogous to identifyingthe market opportunity), then workbackwards to find or build the necessaryresources and competencies necessary todeliver this project/programme. This is anapproach analogous to market-based strategicplanning.

In most corporate operations some type ofstrategic planning exercise will be undertakenannually in each of the key departments ofthe business, be that engineering, finance,human resources, contract management,marketing and sales, R&D etc. Theseexercises often use either a resource ormarket-based strategic planning approach.Given the similarity between thesemanagement tools and the way in whichsocial partnerships are formed, resource andmarket based strategic planning may providean opportunity to embed a core competenciesapproach to development performance. It isplausible that the key success factor toadopting this approach will be to recognisewhether a particular business sector (or evenan individual department within an operation)is more inclined to a resource-based ormarket-based approach.

So, for example, if one is working with CocaCola, a starting point for developing socialpartnerships might be for the company toshare with potential partners fromgovernment, NGOs and donors itsdistribution network and market analysiscapability, and then asking the question: howcan these competencies be used morecreatively, perhaps with partners, to addressdevelopment and, in particular, pro-poorpriorities in the host country, region orlocality?

However, if one is working with an FMCGmanufacturer, the starting point might be toidentify the urgent development priorities inthe country or region of operations, agree thedesign parameters of a project intervention,and then ask the participating company to useits marketing and product re-packagingcapabilities to transform its existing



resources, products and services intosomething tailored to the needs of the socialproject.

Looking across the range of socialpartnership projects sponsored by the BPDprogramme, it would seem that the resource-based strategic planning approach hasdominated. Thus, 3M in South Africa hasprovided existing reflective strips for schoolchildren (rather than adapt the design orapply innovation in marketing), and ICML inIndia has shared the cost of road constructionwith local government, rather than offer toredesign the road to better meet the needs oflocal communities. The exception is AngloAmerican in Zambia, where they recognisedthat a key competency was the company’sability to borrow new money, and so, inaddition to contributing businessmanagement expertise for local companies tobetter access the company’s supply chain (asmight be expected), it also set up a dedicatedventure capital facility to provide affordableworking capital to local companies, aresource that was entirely new to thecompany.

Other characteristics of embedding a corecompetencies approach to developmentperformance within conventional approachesto resource/market based strategic planningare as follows:

• The contributions made by the companyare likely to be drawn from existing,budgets lines, thus increasing variablecosts, rather than introducing new fixedcosts, and keeping transaction costs to aminimum.

• Because of this, it will be a simplermatter to cost any contributions made tosocial partnerships, which in turn willallow a more credible business case to becompiled.

• Management responsibility will fall tothe heads of each department applyingthe new competency-development tool,although some co-ordinating part of thecompany may be needed to create thesynergies or competencies betweendepartments.

• As discussed above, a market-basedapproach will provide opportunities topro-actively explore options fordevelopment performance.

• A resource-based approach may carrythe danger of the company contributingonly those resources that it considers as‘spare capacity’, and which may, or maynot, be relevant to pro-poor developmentpriorities.

In conclusion, both resource-based andmarket based strategic planning techniquesoffer an opportunity to embed a businesscompetency model of developmentperformance. On balance, because of theemphasis on the businesses’ capabilities toadapt its existing resource base to marketneeds, a market-based approach would seemthe more appropriate. Companies in the FastMoving Consumer Goods sectors leanparticular towards a market approach. Inpractice however, the practice of strategicplanning in most companies combineelements of both resource and market basedstrategic approaches.

3.2.5 Relationship Marketing

Relationship marketing has shifted thebusiness emphasis from a short-term, profit-driven, impersonal transaction of goods andservices, to a concern for long termsustainable interaction with clients, focusingon continuous satisfying of customer need.Relationship marketing is principally aboutsupplier/end-user interaction. It focuses onthe collaboration and expectations between asupplying company and the company itserves. The objective of relationshipmarketing is to achieve a ‘win-win’ situationfor all parties and, for the supplying business,to retain and build the loyalty of clients,customers or end-users, from which tomaintain and grow profits.

Frederick Reichheld (1996) identifies sixreasons why loyal customers are moreprofitable and as such why relationshipmarketing is so important. First, theacquisition cost of obtaining new customersis high relative to servicing them over time.Second, the longer a client is retained thegreater the total sum of profit. Third, loyalcustomers will spend more as they learn moreabout the variety of company services.Fourth, as customers become more familiarwith a supplier, the transaction cost of doingnew business with them falls. Fifth, satisfiedcustomers recommend business and enhancecompany reputation. And sixth, establishedcustomers are less price conscious.



The link between the practice of relationshipmarketing and its benefits are as follows:

• Knowledge transfer–improved dialoguebetween parties leading to betterunderstanding of the customer needs andnew opportunities;

• Trust–improved communication createsimproved levels of trust;

• Commitment–working together createsan opportunity to agree common goalsand objectives, which gives greatercommitment and dependency on therelationship;

• Resource sharing–sharing tangible andintangible resources creates costefficiencies;

• Efficiency–joint planning improvesefficiency;

• Lower transaction costs–negotiatingtime reduced, transactions morepredictable and consistent reducingcosts;

• Reduced risk–better access by suppliersand customers to each other’s datalowers risk of both misunderstandingsand uncertainty.

The benefits of relationships based on moretargeted marketing go beyond the supplierand customer. Companies now realise thatthey need to build up a network of satisfiedstakeholders including end-users, employees,regulators, local communities, bankers andshareholders. However, as the number ofstakeholders increases, so there is increasinginstability and complexity in satisfying theirneeds, a situation further complicated byrapidly changing business environments.Interestingly, well-managed stakeholderrelationships can themselves provide theknowledge needed to better manage andtarget marketing. For example, supermarketsnow invariably offer loyalty cards, not onlyto retain customers, but also as a means tocapture detailed information about changingcustomer preferences form which to developnew marketing strategies.

The ‘Dell Direct’ model (Rangan & Bell,1998) is a useful example. Dell recentlychanged its strategy from a manufacturersupplying computers to wholesalers andretailers in the established fashion, to dealingdirectly with the customer, initially via call

centres, later through the Internet. As Dellestablished direct access with its customerbase it was able not only to reduce itstransaction costs, but also build a database onclient needs. This in turn enabled Dell to re-focus yet again on ‘computers to order’. Thecompany further applied the principals ofrelationship marketing to its own supplychain. For example, Dell suppliers haveaccess to the Dell central order system,enabling them to retrieve information onanticipated customer supply schedules,ensuring the more timely delivery of partsand a supplies with faster response times.

In developing countries, some companieshave already applied the principals ofrelationship marketing to the way in whichthey interact with local communities in theregion of operations. Although there is rarelya customer base within such localcommunities, maintaining good relationshipswith communities by, for example, satisfyingtheir needs through social partnerships withcommunities, NGOs, local government anddonors, is increasingly seen as good forbusiness. A summary of how the principles ofrelationship marketing might be translated tothe task of managing social issues, is asfollows:

• Improved dialogue with communitiesand other local society stakeholders leadsto better understanding of the localoperating environment which, inter alia:enables social programmes to be targetedat the true development priorities of localsociety; reduces the risks of sabotage,theft and related adverse publicity causedby hostility from local communities; andgenerates information on opportunitiesfor partnering with civil society andgovernment organisations;

• Continuous two-way communicationbetween the operating business andcommunities creates improved levels ofunderstanding – of particular importancewhen the operating business is atechnology alien to the experiences ofthe local population, and the ecologicaland social environment alien to thebusiness;

• Meeting the true development prioritiesof local communities (be that through thecompany acting alone or through socialpartnerships) creates greater loyalty ofthe communities towards the business,



thereby improving its reputation andpotentially its competitiveness;42

• As relationships and/or partnerships withcommunities, negotiating times (e.g.over site access, facilities expansion, oraccident management) reduces, alongwith the antecedent transactions costs.

Relationship marketing cannot in itself beclassed as a management tool. These days,for many major corporations, it is anengrained modus operandi. Though one canapply the principles of relationship marketingto stakeholders other than customers and end-users, such as local communities, one shouldrecognise that the business benefits of theapproach are likely to differ considerably.What does seem to hold constant, regardlessof the type of stakeholder, is the idea of usingon-going communication to design moretargeted products and services.

There is a potential downside to relationshipmarketing, be that in association withcustomers or communities. The cost ofmaintaining relationships can be high. This isdue not only to the exercising of continuouscommunication and re-targeting of productsand services, but also to meeting the raisedexpectations of the new, more ‘loyal’,customer or community. Thus, a customerwho always chooses Tesco over othersupermarkets, will perhaps expectpreferential treatment at the checkout tills, tothe detriment of less frequent customerswhose loyalty the company would like tosecure.43 Or, local communities who, becausethey have already been prioritised foremployment by the oil and gas operatingcompany, expect the same type of preferencefrom the company’s main contractors, anoutcome the contractor is not obliged todeliver.

3.2.6 Growth Strategies

To sustain success, businesses need to be ableto respond to competing pressures within thewider industry: “When the rate of changeinside a company is exceeded by the rate ofchange outside the company, the end is near”(Jack Welch, Ex Chairman of General

42 For example, the indigenous communities affected bythe involvement of Royal Dutch/Shell in the Cameseaproject, Peru in the late 1990’s, wrote a letter to thegovernment regulators requesting that other oilcompanies treat them in the same manner.43 M. Jones, pers. comm.. 2001.

Electric). As market requirements changeorganisations need to decide how to reconciletheir resources and capabilities with that ofthe market. In the section on resource andmarket-based strategic planning, we noted theimportance of the company being able to useits existing internal capabilities to better useor adapt its resources. However, the approachis always limited by the capabilities it has inthe first place, along with its resource base,be that product range, R & D capacity, ordistribution network. Where the need torespond to market opportunities cannot bemet through innovation between its existingcapabilities and resources, the company isfaced with three broad options:

• Internal development

• Acquisitions

• Strategic alliances

Internal development is about building theresources (tangible or intangible) and/ormanagement capabilities from within thecompany. Acquisitions build resources andcompetencies by taking these over for otherbusinesses. Strategic alliances are where twoor more organisations pool their resourcesand/or capabilities in pursuit of the samestrategy.

The advantage of internal development is thatthe company grows its capacity to meetmarket needs without the political andcultural complexity involved in merging orcollaborating with others. Such internalorganisational change can be a slow process,particularly in the more establishedcorporations where staff inertia to changingwork practices can be a significant obstacle.Acquisitions, in contrast, are attractivespecifically because of the speed at whichnew capabilities can be gained. However,making acquisitions successful can becomplex. The initial price paid needs to be afair reflection of both the additional valueand the complexities of integration. Studiesshow that acquisitions often fail to add thedegree of anticipated value on three counts:first, because the parent company has beenunable to predict the precise way in which thecombined capabilities will be used to managethe full portfolio of the acquired business(both those business assets that lie at the heartof the acquisition and those more peripheral);second, because of the lack of true synergiesbetween the two businesses; and third,because of cultural differences and staffinertia to change.



With regard to the first of these, GrandMetropolitan (Diageo) initially implementeda very successful acquisition strategy, onlyfor the strategy to drift away from a focus oncore business. The result was a downturn intheir business fortunes associated to a lack ofcapabilities to manage those aspects of theacquisitions unrelated to their core business.

Strategic alliances provide a third alternative.These are growing in importance as a meansto manage and exploit the increasinglycomplex global economy. The greatadvantage of strategic alliances is that there isno bid premium involved and they usuallyinvolve only parts of a company, thusminimising risk to shareholders.

The types of benefits commonly brought bystrategic alliances include:

• Economies of scale designed to yield thecritical mass needed to facilitate entry toa new market;

• A means to explore remote geographicalmarkets, with local companies providingthe local market knowledge anddistribution networks;

• Access to a specialist capability orresource identified as critical to retaincustomers or access a new market;

• Shared risks and costs of new ventures;

• Complementarity of capabilities orresources, which replace the need forturning to internal development oracquisition as a growth strategy.

Lufthansa recognised in the early 1990’s thatit needed to make dramatic changes in itsstrategy if it was to survive in theincreasingly competitive airline industry.Through structural, operational and strategicmethods the company managed a verysuccessful turnaround. One of the keyelements of the success was their formationof The Star Alliance. The network includedeight airlines operating in 720 destinations in110 countries. Their strategy was growththrough partnerships and not dominance.Initially they focused on code sharing, butimportant synergies were leveraged in otherareas of the business. The alliance used jointsales and travel agency activities, advertising,market research and shared facilities(lounges). There were also operational

advantages through the shared technology,platforms, training and the Alliance globalbrand.

Both these last two criteria – new businessarea and new geographical region – apply tomany of the investments corporations makein developing countries. In order to growtheir business in these markets, the operatingcompany needs to develop new resources andcompetencies in order to deliver developmentperformance (in particular benefits alignedwith the development priorities of localcommunities). It is surprising then to find thatthe principal growth strategy of the extractiveindustries sector, is principally internaldevelopment. Thus many companies have‘bought-in’ capabilities in communitydevelopment. For example, staff from CAREInternational (one of the world’s largesthumanitarian relief and communitydevelopment NGOs) recently moved to takeup permanent jobs with Rio Tinto and ShellInternational. Similarly, the chief advisor toSPDC in Nigeria previously worked for theUNDP and was a senior EnvironmentalAdvisor at the UK Department forInternational Development. SPDDC now hasa $50 million budget and an entiredepartment dedicated to providingcommunity development. Its foray into thisarea has gone as far as supporting the recentcomment by the aforementioned advisor, that“community development is now a corecompetency of SPDC”. (LaPin, D., perscomm. 2001).

This pattern of business development seemsto fly in the face of the convention onbusiness growth strategies. Strategicalliances, and not internal development oracquisitions, would seem to offer a morecost-effective and less risky approach toproviding community benefits. Communitydevelopment as an activity is clearly on theperiphery of the core business of naturalresource exploration, development orproduction, and as such requires capacitiesand resources alien to existing staff. For thesereasons, most companies would rather buy inthe new skill sets than try to develop theirexisting staff, many of whom haveengineering or business managementbackgrounds and lack the incentives andpatience needed to work directly with poorcommunities.

However, precisely because these new staffbring such alien competencies, most corebusiness departments, e.g. engineering or



procurement, see very few opportunities forsynergy. Likewise, the new staff memberstend to know little about the core business orbusiness management in general, and preferto press on with what they know best – i.e.community participatory programmes –rather than look across at other departmentsfor resources or capability that might becomplementary to the development prioritiesof the local area.

There is, however, mounting evidence thatstrategic alliances may be a better way towork. As concluded by the Business Partnersfor Development programme (PwC, 2002), astrategic alliance approach to communitydevelopment, based on partnering betweencorporate operations, NGOs, local business,governments and multi and bi-lateraldevelopment agencies, can deliver many ofthe same benefits currently attributed toconventional strategic business alliances,namely:

• A means to explore remote geographicalmarkets, e.g. with local NGOs providingthe local knowledge about communitiesand their development priorities;

• Access to a specialist capabilities orresources. These might be communityparticipatory planning skills from NGOs,or funds from local government orforeign aid agencies, both critical to thebusiness retaining its informal sociallicense to operate with localcommunities, and in some cases, togaining a competitive advantage whenbidding for new concessions;

• Shared risks and costs of new ventures,in particular reducing the business risksof long-term cost and reputationliabilities for the provision of publicgoods and service that should properlybe the responsibility of government; and

• Complementarity of capabilities orresources where the core competenciesof the business (e.g. distribution network,project management skills) are applied(or adapted) to increase the geographicreach, time-to-benefit or quality of NGOor government community programmes.

3.3 Conclusion

For a competencies/partnering approach todevelopment performance to work inpractice, a new management tool is neededwhich investigates where, across the fullrange of departments within a businessoperation, lie the most relevant resources andcompetencies for contributing to thedevelopment priorities in society. For thisreason the ODPCI programme willconcentrate on adapting existing businessmanagement tools to the task of mappingcompetencies onto development priorities.Though the HSE Department of a businessoperation may remain involved in driving theapplication of the resulting ‘competency-poverty mapping tool’, the tool will beembedded across each of the operation’sdepartments, and not just one department.

In one way, the proposed ‘competency-poverty mapping tool’ will hold greatersimilarity to the practice of EnvironmentalImpact Assessment (EIA), than it will to thevoluntary social investment programmes ofcompanies. In the former, although the HSEdepartment leads the EIA study, otherdepartments across the business input data onsources of potential negative environmentalor social impact, as well as contributing ideasfor mitigation such as changes to engineeringdesign. In the latter, through the HSEdepartment (or some dedicated CommunityDevelopment department or unit) may drivethe process, there is very little input from therest of the business.



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